By Mushfiq Ahmad
KARACHI: The rupee took another sharp plunge on Friday against the dollar in the interbank market owing to lingering political uncertainty and high trade deficit.
The greenback closed at Rs 76.30 to 76.50 on Friday compared with the close on Wednesday at Rs 76.15 to 76.20. At one stage, the dollar had crossed Rs 77 level. In the open currency market, the dollar closed at Rs 76.50 for buying and Rs 77 for selling. The rupee has lost more than 23 percent of its value against the dollar this year
The rupee last hit a record low of around 75.05 to the dollar on Wednesday. Markets were shut on Thursday for an Independence Day holiday. Usually the gap between interbak and open currency market rates is about 100 paisas, but the current gap is much lower because the dollar has been rising fast in the interbank while the SBP’s strict regulation of the foreign exchange companies’ business has kept the dollar’s price relatively lower at their counters.
Economic experts have already predicted that the dollar might rise to Rs 80. Some believe the central bank had kept the rupee overvalued for quite sometime before the current slide began. They say that, seeing the large trade and current account deficit, the rupee had to lose its value. The country had a trade deficit of over $20 billion during the last year and current account deficit of about $14 billion. The rupee has weakened very sharply since the ruling coalition of the country firmed its stance on impeachment of retired General Pervez Musharraf.
Falling foreign direct investment and outflow of foreign investment from the stock markets are other factors that have weighed on rupee.
The rupee has been losing its value against the dollar for more than one year, but the pace of decline has accelerated since May this year. It gains some stability every time the SBP takes some measures to support the domestic currency, but starts losing value soon afterwards. Bankers say the central bank, after supporting the rupee for many years, is now finding it difficult to cushion the domestic currency because the foreign exchange reserves have declined from over $16 billion in October last year to $10.159 billion in the week ending August 2. Still, the central bank is providing dollars to banks for their customers’ oil import payments. But it has been inactive otherwise, choosing not to intervene in the market.
Source: Daily Times, 16/8/2008