KARACHI (updated on: July 08, 2008, 17:14 PST): Rupee slid 2.6 percent on Tuesday to close at a record low in a market worried about high inflation, burgeoning deficits and security.
The currency closed at 72.85/90 to the dollar after falling as low as 73.04 rupees, when dealers suspected the central bank intervened to stop the rot.
However, in trade after the ready market closed, known as value tomorrow trade, dealers said the rupee traded at 73.85 to the dollar at around 10:00 GMT, for settlement on Wednesday.
The value tomorrow trade usually gives an indication on how the rupee will open the following day.
A new civilian-led coalition government, sworn in more than three months ago, has sought help from multi-lateral lenders and friendly governments to stave off the economic threats as the country tries to cope with soaring import costs.
Any news that loans had been approved could provide some relief to the rupee. Foreign currency reserves have dwindled to levels equivalent to less than three months worth of imports as the central bank sold dollars to help oil importers make payments.
There was also market speculation that the State Bank of Pakistan would raise interest rates in a policy review later this month to try to bring rising prices under control, dealers said.
“Fixing the problem is not easy since inflation is globally driven and for Pakistan it’s also a structural issue as it does not have a lot of exports,” said Matthew Wilson, an analyst at Morgan Stanley.
The rupee has fallen 18.3 percent against the dollar this year as annual inflation has accelerated to a three-decade high above 19 percent and fiscal and current account deficits have widened, due largely to a soaring oil import bill.
“When the fundamentals are not strong enough, how will the rupee strengthen? It’s not easy and the outlook is quite bleak,” said a currency dealer.
Dealers said the weakest the rupee traded at on Tuesday was 73.04 rupees. It closed at 71.00/05 on Monday.
They said a suicide attack in Islamabad on Sunday and six small blasts in Karachi on Monday had no direct impact on trade but compounded worries about the overall investment climate.
Trading dried up in the stock market after authorities took aggressive action on June 24 to halt a steep fall. Daily limits were revised to allow the market to rise 10 percent but fall just 1 percent. A temporary ban on short selling was introduced.
Source: Business Recorder