Rupee drops to eight-month low

High dollar demand, major outflows top reasons for depreciation .


Faryal Najeeb May 20, 2011

KARACHI:


The rupee ended at its weakest in eight months as it declined to close at 86.23/33 to the dollar on Friday, following major outflows, high dollar demand and as a reaction to market sentiments prior to the federal budget.


The rupee declined by Rs1.30 to close at 86.50/70 in the open market. The local currency has now lost 1.8 per cent against the greenback in this month alone, more than its total loss in the entire of 2010. The rupee had touched its lowest on September 30 last year when it traded at 86.35 to the greenback.

Forex Association of Pakistan (FAP) President Malik Bostan said the US dollar demand was high at the moment as payment for oil, imported goods and debts were all coming up. He further added that as the summer vacations for schools are near, local people and private tour operators have “also pushed the demand for the greenback on a higher-than-usual side”.

“Upcoming budget for next fiscal is also another factor that stakeholders have started hoarding US dollar,” Bostan pointed out. He said the FAP will be holding a meeting with the SBP Governor as soon as possible to keep the rupee stable against dollar in the inter-bank and open market.

Head of Research at InvestCap, Khurram Shehzad said there had been an aggregate $300 million worth of outflows particularly on Friday, of which $70-80 million had been for oil payments. “This extraordinary outflow could have been one reason that the rupee lost value today (Friday),” he said.

Shehzad further said that since the government had announced they expect rupee-dollar parity may reach Rs91, the market has been actively investing in the US unit, before the budget. He added that dollar has also been in demand for mutual funds premium payments, which have been high in recent months.

Published in The Express Tribune, May 21st, 2011.

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