Rupee remained weaker Wednesday against US dollar on the back of, what market observers said was, burgeoning import payments and a risk-averse behaviour of exporters concerned over a bleak economic outlook for the crises-hit country. According to currency dealers, the day saw rupee trading at a record low of Rs89.58 a dollar on the volatile inter-bank market. At one point in the afternoon, dealers said, the rupee value ranged between Rs89.44 and Rs89.50 against the greenback that, a day earlier on Tuesday, had appreciated to a level ranging between Rs89.10 and Rs89.20.
December 7 was the day when local currency had nosedived to, what the bank dealers had then called it, a record low of Rs89.36 owing to panic buying of dollar by importers on the inter-bank market to clear import payments ranging from $40 million to $45 million. According to official figures, the last six months, June-November, saw the rupee devaluing almost by seven per cent against the American currency with the market observers foreseeing another seven per cent decline by the end of current fiscal year, June 2012. “We believe PKR would depreciate by 7 per cent in FY12 to close the year around the levels of Ps92 per USD. This is inline with last 20-yrs (FY91-11) average depreciation of 7.1 per cent, while it is above the last 10-years average of 4.1 per cent,” observed Topline Securities in its latest analysis. Currency dealers hold the central bank partially responsible for stimulating the present demand for dollar on the inter-bank market. They claim that the media reports on deliberate currency devaluation by State Bank and the regulator’s subsequent silence on the issue had created supply and demand problem on the inter-bank market with importers doing 6-month forward-booking at Rs93 and the exporters holding their dollar reserves to avoid a negative in case of future depreciation of the rupee.
Malik Bostan, chairman Exchange Companies Association of Pakistan (ECAP), proposes that a formal policy announcement by the central bank may be an effective remedy to the ongoing currency crisis. Also, the ECAP chief cites renewed Pak-US diplomatic tensions and the resultant flight of capital as an attributive factor for the present rupee depreciation. “Foreign investors are withdrawing their investment due to heightening tensions between US and Pakistan,” Bostan told Profit.
There are analysts who attribute current negative balance in the rupee-dollar parity to the country’s deteriorating current accounts that saw a gap of $ 1.5 billion during July-Oct FY12 against $ 541 million of FY11. “The rupee has come under considerable pressure against the US dollar on account of more than expected weakness in the current account while financial account has also failed to provide any support,” said the analysts. Analysts are concerned that this deterioration in the current accounts was reflecting adversely on the dollar-starved country’s foreign exchange reserves which have contracted to $16.6 billion after peaking to historical $18.3 billion in July. The unavoidable future drains like the repayment of $ 1.2 billion to the International Monetary Fund during the second half of FY12 were also set to take a heavy toll on the rupee in terms of its value against the greenback. The Fund also contradicts Islamabad’s revised 4.2 per cent growth estimates maintaining that the economy would grow at maximum by 3.5 percent.
Some see, and rightly so, the exporters’ risk aversion amid a bleak outlook for the country’s ailing economy that, the IMF forecasts, must brace for a fiscal deficit of not less than 7 percent during FY12.
“The exporters are holding on their dollars to avoid a possible depreciation in the rupee value,” said a rupee expert. On the other hand, the importers are busy in panic-buying and doing six-month advance booking of the greenback at a rate as high as Rs93 to remain in the safe haven.
