By Shahid Iqbal
KARACHI: The currency market sees a depressing period ahead for the rupee as the buying spree of dollars is expected to begin with the end of State Bank’s deadline for payment of furnace oil import.
The market has yet not witnessed any bulk buying of dollars by the private sector despite the State Bank’s deadline for import of furnace oil payment approaching closer, but it could start from the second week of February.
The oil import bills which are still being paid 100 per cent by the State Bank will come to an end partially on February 2, 2009.
The State Bank, under an agreement with the International Monetary Fund (IMF), had announced on January 15 that it would not pay import bills of furnace oil from February 2, 2009.
Private sector was asked to arrange dollars to make payment for furnace oil, which accounts about 20 per cent of the total oil import bills.
‘We have not seen any visible activity in the currency market regarding heavy dollar buying,’ said Atif Ahmed, currency dealer at the inter-bank market.
Despite fall in oil prices compared to last year, the amount involved in import of furnace oil could be in the range of $1.5 to $2 billion.
The country’s total foreign exchange reserves stood at $10.208 billion on Thursday of which $6.872 billion were held by the State Bank and $3.335 billion by commercial banks.
‘The buying is expected next month and that will bring vital change in the exchange rate,’ said treasurer of a large local bank.
He said the rupee could face another phase of depreciation once the buying of dollars picks up in the inter-bank market.
The country’s reserves have improved after the IMF facility, soft loan from China and sharp fall in international oil prices, but the bankers think pressure on the local currency will mount with the shifting of oil payment to the private sector.
The rupee which is hovering around Rs79-80 per dollar has already depreciated by 23 per cent in last calendar year.
The SBP will shift the entire load of oil import bills to the private sector by February 2010 and till that time it will continue providing dollars to the banks for import of other petroleum products.
The SBP is committed to pursuing a flexible exchange rate policy while it assured the IMF for shifting of its entire oil bills payment responsibility to the private sector from February 2010.
The SBP had started making payments for oil imports in the wake of steep erosion in the rupee value that created space for speculative market causing depreciation of the local unit.
‘If the shifting of oil bills to private sector weakens the rupee, it will pave the way for speculators to sit in the market and earn at the cost of the domestic economy,’ said Aasim Shiraz, a researcher working on currency movement.
He said shifting of oil bills payment should be a long-term programme instead of doing it away in one year.