Rupee sets yet another record low

The rupee falls for third consecutive day amid high demand for the dollar on Wednesday.

KARACHI: The rupee fell for the third consecutive day amid high demand for the dollar on Wednesday. The local unit ended at 86.24/29 to the dollar, compared with Tuesday’s close of 86.22/28.

Dealers expect the rupee to weaken further against the greenback. A currency dealer said the rupee traded as low as 86.29, beating the previous record low of 86.25 hit on Tuesday. The rupee has lost 1.51 per cent this year, after falling 6.17 per cent in 2009.

President of the Pakistan Foreign Exchange Dealers Association, Malik Bostan, said that the rupee is likely to remain under pressure for a while despite the central bank’s move to jack discount rate up.

“Under usual circumstances, when interest rate rises, rupee gains strength as people return to invest in the currency (market) and turn to savings as a means of investment,” he said. However, this time around, the situation is different as demand for the dollar is very high.

Bostan said that apart from daily dollar demand for import payments, Hajj season and high public dealings, the rupee had also come under pressure because of the central bank’s reluctance to release foreign exchange, reflecting the increase in its reserves.

The currency dealer said that the State Bank had asked financial institutions and banks to manage their own demand and supply while watching the situation from a distance.

Giving his opinion on the rise in interest rate by 0.5 per cent to 13.5 per cent, Bostan said that he expected inflation to increase further while businesses will weaken.

In the money market, overnight rates ended flat at 10 per cent, unchanged from Tuesday’s close and dealers said the next inflow amounting to Rs8 billion ($92.7 million) were scheduled for Friday.

Published in The Express Tribune, September 30^th, 2010.