Rupee firms against dollar during the week

Currency likely to stay stable until the end of the quarter.

KARACHI: The rupee firmed during the outgoing week as it closed at 85.53/58 to the dollar on Friday against 85.70/75 on Monday, which was also its lowest level for the week.

The currency remained steady on the first three days due to a steady demand for the greenback, but declined slightly on the last two days of the week amid higher international oil prices.

Adviser to the Exchange Companies Association of Pakistan, Naeemuddin, told The Express Tribune the rupee remained stable against the greenback due to lower demand of the dollar for import payments.

He said the local unit is likely to stay stable till the end of the current quarter in March, as import payments are usually made on quarterly basis and most of the bills have been settled until March, which is when the next bout of payments will start.

Naeemuddin advised currency buyers and investors that “if they want to buy, now is the time to do it.” However, he said “currency is a very volatile form of investment and high levels of risks are always present.”

He added this strength is short term and the rupee will not continue to remain firm for a long term since various factors influence its movements. Factors such as political and economic activities among others set the movements of the currency.

“As long as our economy does not stabilise, industries do not operate at optimum capacity and investments do not come in, the rupee will not stay stable for the long term,” he stated.

InvestCap Head of Research Khurram Shehzad agreed and said the rupee would not remain strong for long. He said the outgoing week saw the rupee firm against the dollar as there were more inflows compared to outflows. “In a month’s time, outflows will increase as the country would have to pay for imported commodities,” he said, adding prices of commodities had risen in the international market, particularly of oil, which would mean more money flowing out of the country.  “We witnessed recently that the government kept oil prices unchanged, which means it would have to pay more dollars from its own pocket as one-third of the import bill comprises fuel purchase. Consequently, government borrowing will increase, leading to high inflation,” Shehzad said.

He said other factors like political instability and law and order issues also put pressure on the currency as investment flow slows down and exports are affected, factors which lead to less inflow of dollars. “If the country is not able to balance the inflow and outflow of the dollar, the rupee is likely to receive further bashing,” he said.

The rupee lost 1.53 per cent in 2010 after losing 6.17 per cent in 2009. Dealers said it should remain steady this year if the economy remains on track.

Published in The Express Tribune, February 6^th, 2011.