Rupee hits all-time low against dollar
The local currency lost another eight paisa in inter-bank trade compared with Thursday’s closing.
KARACHI:
The rupee continued to weaken and hit an all-time low against the dollar on Friday.
The local currency lost another eight paisa in inter-bank trade compared with Thursday’s closing. By the end of trade on the last trading day of the week, a single US dollar was costing Rs86.03.
Payments for imports have increased demand for the greenback in recent days, bank officials commented. “Furnace oil imports contributed heavily to the demand for dollars on Friday,” said a bank official.
Experts hold political instability responsible for the recent drop in the rupee. “Normally businesses have to cover their dealings for the third quarter around this time of the year but right now we are seeing higher activity which shows that firms are attempting to cover their year-end positions,” commented a dealer.
He explained that the economic scenario has caused jitters among local businesses which are covering their obligations sooner on fears that the rupee may face more pressure in coming weeks.
The local currency has also faltered in the open market. A single US dollar was hovering at Rs86.5 on Friday.
“Previously inter-bank rates were higher than open market rates but now both are close to parity on the back of renewed demand for US dollars,” said president of the Pakistan Foreign Exchange Dealers Association, Malik Bostan.
He added that the rupee is likely to drop further before the end of the year, although fluctuations may be seen in the short-term.
“The central bank may intervene on Monday because it has enough reserves to enter the market when the rupee takes a beating,” he explained.
Dealers have also pointed out that demand for imports is on the rise following the devastation caused by the recent floods. At the same time, they said remittances are expected to come down in the near future after getting a boost in the Eid season.
“On top of all this, we also have demand for foreign currencies from Hajj pilgrims,” said Bostan, explaining his expectation of further pressure on the local currency.
However, some analysts assert that the central bank is severely limited in its ability to step in and lend stability to the rupee against other currencies.
“Roughly 35 to 40 per cent of the foreign reserves held by the State Bank have been given by the International Monetary Fund under the stand-by agreement,” said InvestCap Head of Research Khurram Shehzad.
He added that this money can only be used to manage the country’s balance of payments and not for market interventions.
Experts cited that the rupee has been under pressure on the back of import repayments and these are likely to continue driving down the value of the rupee against the US dollar. They contend that stability for the local currency in foreign exchange markets will hinge on remittances and timely receipt of aid pledges to the government.
Published in The Express Tribune, September 25th, 2010.
The rupee continued to weaken and hit an all-time low against the dollar on Friday.
The local currency lost another eight paisa in inter-bank trade compared with Thursday’s closing. By the end of trade on the last trading day of the week, a single US dollar was costing Rs86.03.
Payments for imports have increased demand for the greenback in recent days, bank officials commented. “Furnace oil imports contributed heavily to the demand for dollars on Friday,” said a bank official.
Experts hold political instability responsible for the recent drop in the rupee. “Normally businesses have to cover their dealings for the third quarter around this time of the year but right now we are seeing higher activity which shows that firms are attempting to cover their year-end positions,” commented a dealer.
He explained that the economic scenario has caused jitters among local businesses which are covering their obligations sooner on fears that the rupee may face more pressure in coming weeks.
The local currency has also faltered in the open market. A single US dollar was hovering at Rs86.5 on Friday.
“Previously inter-bank rates were higher than open market rates but now both are close to parity on the back of renewed demand for US dollars,” said president of the Pakistan Foreign Exchange Dealers Association, Malik Bostan.
He added that the rupee is likely to drop further before the end of the year, although fluctuations may be seen in the short-term.
“The central bank may intervene on Monday because it has enough reserves to enter the market when the rupee takes a beating,” he explained.
Dealers have also pointed out that demand for imports is on the rise following the devastation caused by the recent floods. At the same time, they said remittances are expected to come down in the near future after getting a boost in the Eid season.
“On top of all this, we also have demand for foreign currencies from Hajj pilgrims,” said Bostan, explaining his expectation of further pressure on the local currency.
However, some analysts assert that the central bank is severely limited in its ability to step in and lend stability to the rupee against other currencies.
“Roughly 35 to 40 per cent of the foreign reserves held by the State Bank have been given by the International Monetary Fund under the stand-by agreement,” said InvestCap Head of Research Khurram Shehzad.
He added that this money can only be used to manage the country’s balance of payments and not for market interventions.
Experts cited that the rupee has been under pressure on the back of import repayments and these are likely to continue driving down the value of the rupee against the US dollar. They contend that stability for the local currency in foreign exchange markets will hinge on remittances and timely receipt of aid pledges to the government.
Published in The Express Tribune, September 25th, 2010.