By Mushfiq AhmadKARACHI: The Pakistani rupee recorded a sharp decline in its value against the US dollar on Monday, as the State Bank chose not to intervene in the foreign exchange market.
“The dollar surged to Rs 72.05 at the close of the day, higher by Rs 1.85 from Saturday’s close of Rs 70.20,” said head of treasury of a large local bank. “The State Bank didn’t come to the rupee’s rescue as it normally does, to prevent a sharp slide in its value.”
The rupee is sinking to a new all-time low after every few days, as the country faces extraordinarily large trade and current account deficits and falling investment flows from abroad with stagnant exports. The demand for dollar is increasing with rising crude oil and food prices.
“The importers were buying dollars in panic because there was little supply in the local market due to extended weekend in the US market from where we receive a very large amount as remittances,” said a banker.
There is always pressure on the rupee after holidays.
“Different factors combined to put pressure on the rupee,” said a banker. “On the one hand importers are panicked; on the other exporters are holding their proceeds for longer-than normal period.”
A banker said it seemed the central bank is no more inclined to defend the rupee. “It looks the SBP now wants to let the rupee slide,” he said.
The State Bank had imposed 35 percent LC margin on most imports in May, but has withdrawn it on many items since then after facing criticism by the business community. It has put renewed pressure on the rupee.
The fall in rupee’s value has necessitated intervention by the central bank in the recent past, which has caused a fast depletion in the foreign exchange reserves. From over $16 billion in October last year, they have dropped to about $11 billion in June.
The central bank is widely expected to raise interest rates by 1 to 2 percentage points later this month in an effort to control prices in the country and also to support the rupee.
The governor State Bank of Pakistan had assured the presidents of banks in May that large inflows of foreign exchange were in the pipeline which would stabilise the rupee value. The statement combined with some strict measures taken by the central bank halted the rupee’s slide then. More than one month has passed since then, but there have been little inflows, hence renewed pressure on the rupee.
Daily Times, 8/7/2008