Central bank to the rescue: Panic buying ends, rupee recovers 90 paisa
SBP spokesman denies any intervention to resuscitate local currency.
KARACHI:
After the supposed intervention of the State Bank of Pakistan (SBP) and end in panic buying of the dollar, the rupee recovered 90 paisas against the dollar in the open market on Tuesday.
Contrary to panic buying of the dollar on Monday, money dealers said the market remained calm on Tuesday that helped the rupee regain most of what it had lost in the last few days.
They said SBP injected dollars into the open market on Tuesday through exchange companies to counter panic buying.
After touching the 90.40 mark against the dollar a day earlier, the rupee closed at 89.50 in the open market on Tuesday, recovering 90 paisas. Panic buying caused unusual rupee depreciation on Monday, but the dollar demand reduced on Tuesday amid positive statements from US and Pakistani officials that the two countries were trying to ease off the politically charged atmosphere.
However, the SBP spokesperson did not confirm the intervention of the central bank to stop the continuous decline of the rupee against the dollar. “Yes, it is one of the many functions of the central bank.
But I do not know whether this time the SBP intervened or not,” the SBP spokesperson said when asked about the government’s pressure on SBP to intervene after the sharp decline of the rupee in the open market.
While major reasons of rupee depreciation were Pakistan’s decision against seeking the extension of the IMF programme and rising political tensions between the United States and Pakistan, the fact that a large number of Hajj pilgrims also bought dollars worsened the situation, a dealer told The Express Tribune.
“We expect that the dollar in the open market will come back to the level of the interbank rate in a few days,” he said. “In this season, the dollar remains high because of import payments. It will remain high until Eidul Azha and then come down because usually expatriates send dollars every year on Eid.”
Analysts say the sharp decline in the rupee came after the escalation of tensions in US-Pakistan relations. However, they add that the decline was also a result of high import and debt payments in recent weeks.
InvestCap Research Head Khurram Schehzad said he believed SBP intervened on Tuesday to control the situation.
“The rupee depreciation should be viewed separately from US-Pakistan tensions, because double-digit inflation and higher debt repayments with low economic growth have already put lot of pressure on the rupee in recent months,” Schehzad said.
He said fiscal deficit, high interest rates, double-digit inflation and a low growth rate were causing serious problems for the economy. “These problems need to be fixed. Otherwise, the rupee will remain under pressure in this fiscal year.”
Analysts also believe the dollar in the open market will come down to the level of the interbank rate in a few days, as the market will readjust itself. “The current difference of Rs2 in the open market and interbank rates cannot continue for more than a few days,” one analyst said.
Published in The Express Tribune, September 28th, 2011.
After the supposed intervention of the State Bank of Pakistan (SBP) and end in panic buying of the dollar, the rupee recovered 90 paisas against the dollar in the open market on Tuesday.
Contrary to panic buying of the dollar on Monday, money dealers said the market remained calm on Tuesday that helped the rupee regain most of what it had lost in the last few days.
They said SBP injected dollars into the open market on Tuesday through exchange companies to counter panic buying.
After touching the 90.40 mark against the dollar a day earlier, the rupee closed at 89.50 in the open market on Tuesday, recovering 90 paisas. Panic buying caused unusual rupee depreciation on Monday, but the dollar demand reduced on Tuesday amid positive statements from US and Pakistani officials that the two countries were trying to ease off the politically charged atmosphere.
However, the SBP spokesperson did not confirm the intervention of the central bank to stop the continuous decline of the rupee against the dollar. “Yes, it is one of the many functions of the central bank.
But I do not know whether this time the SBP intervened or not,” the SBP spokesperson said when asked about the government’s pressure on SBP to intervene after the sharp decline of the rupee in the open market.
While major reasons of rupee depreciation were Pakistan’s decision against seeking the extension of the IMF programme and rising political tensions between the United States and Pakistan, the fact that a large number of Hajj pilgrims also bought dollars worsened the situation, a dealer told The Express Tribune.
“We expect that the dollar in the open market will come back to the level of the interbank rate in a few days,” he said. “In this season, the dollar remains high because of import payments. It will remain high until Eidul Azha and then come down because usually expatriates send dollars every year on Eid.”
Analysts say the sharp decline in the rupee came after the escalation of tensions in US-Pakistan relations. However, they add that the decline was also a result of high import and debt payments in recent weeks.
InvestCap Research Head Khurram Schehzad said he believed SBP intervened on Tuesday to control the situation.
“The rupee depreciation should be viewed separately from US-Pakistan tensions, because double-digit inflation and higher debt repayments with low economic growth have already put lot of pressure on the rupee in recent months,” Schehzad said.
He said fiscal deficit, high interest rates, double-digit inflation and a low growth rate were causing serious problems for the economy. “These problems need to be fixed. Otherwise, the rupee will remain under pressure in this fiscal year.”
Analysts also believe the dollar in the open market will come down to the level of the interbank rate in a few days, as the market will readjust itself. “The current difference of Rs2 in the open market and interbank rates cannot continue for more than a few days,” one analyst said.
Published in The Express Tribune, September 28th, 2011.