At a time when the rupee started showing vulnerability against the dollar, the State Bank of Pakistan (SBP) in precautionary measures began tightening the forex rules and regulations to ward off speculative dollar buying and discourage the dollarization culture in the country, money experts observed.
The other factors which boosted the rupee in terms of the dollar were the easy supply of dollars after the 9/11 incident as the overseas Pakistanis started sending money home due to uncertain political scenario, Malik Bostan, president of Forex Association of Pakistan (FAP) said.
Yet another major factor was dollar's weakness against major currencies in the world market due to its own weak fundamentals, ballooning US trade deficit and continued disappointing economic data, rise in joblessness, inflation rates and weak consumer confidence data, Nabeel, marketing Manager of Khanani and Kalia International said.
He said that the current rise in the dollar value was phenomenal as during the month of Ramazan dollar supply increases sharply when expatriates send foreign exchange to their kith and kin for Eid celebrations.
After Eid-ul-Fitr, the dollar may recover its gains, as a result of tight supply, dealers said.
At the same time, the central bank has an important job to adopt precautionary measures to save exports from declining, they said. Besides, other measures are considered to give boost to exports, which compare nowhere to figure to imports, they opined.
It came under observation that by the passage of time the corrective measures introduced by the central bank in the forex regime started showing positive signs as a result of slight fluctuations in the rupee-dollar parity rates, they said.
During the last two years, as a result of corrective measures, profit-takers kept to the sidelines. Genuine dollar holders showed less buying interest in the US currency and invested their hard earnings in the stock market or land businesses which were comparatively more lucrative for them.
Besides, overseas Pakistanis had started sending dollars by the official channels due to slight fluctuations in rupee value versus dollar, Nabeel Iqbal of KKI said. Furthermore, the demand for dollars declined after the establishment of exchange companies all over the country, he said.
In the meantime, the firmness of the rupee was disturbing the exporters, as they felt that if the Pak rupee depicted more strength versus dollar in the coming days, it might not help the country's exports in the world competition, analysts said.
Stronger rupee may not help in the world markets where India and China are already present with their better production and cheaper rates as well.
Most of the regional currencies are drifting lower versus dollar and cheaper rates always attract the buyers and enhance the earning power of any country, they said.
This factor may propel the SBP to take some precautionary measures to save exports from losing the world markets, they guessed. They feared that high value of the Pak currency might affect exports negatively.
The trade policy for 2005-06 offers incentives for diversification of exports, increased market access, and trade facilitation. Export target is 17 billion dollars and the import bill target is 21.79 billion dollars, leaving a yawning trade deficit of 4.79 billion dollars.
In the first quarter of the current fiscal year 2005-06, the rupee showed firm posture versus dollar, trading in a narrow band of Rs 59.62 and Rs 59.72.
Since January 2005, in the interbank market, the Pak rupee has shed 0.50 percent for a dollar at Rs 59.71 against the last rate of Rs 59.42.
The Indian rupee shed 3.79 percent versus dollar at 45.08 against the last rate of 43.51. The Bangladesh taka lost nearly 10 percent versus the dollar at 65.65 against the last rate of 59.72.
Sri Lanka rupee, however, gained nearly four percent at 101.67 against the previous rate of 104.45. Thai bhat shed 0.43 percent at 41.16 against the previous rate of 40.98 during the same period.
Under these circumstances, when most of the regional currencies are losing value, Pakistan's monetary team should take necessary steps to make export items more attractive for the importing countries.
In fact, basic fundamentals are not very favourable, keeping the monitoring officials worried how to manage it to look respectably strong. Monitoring authorities are apparently anxious about the constantly rising trade deficit, which might touch 8-9 billion dollars mark by the end of the current fiscal year, which is not a very healthy sign for the economy.
Only in the first quarter (July-Sept), trade deficit was higher by 188 percent to 2.4 billion dollars, which might touch 9-10 billion dollars figure if the present rising trend continues in the trade deficit.
If the exports do not show any significant improvement or imports do not come down, how the government would tackle the challenges after the devastating earthquake is a big problem.
It's a very big shock for the nation and setback for the economy as well. It is giving a thought that how far it is possible for the government to continue the rehabilitation or relief works without economic progress.
The weaker dollar would definitely help in bringing down the cost of heavy machinery items and other major products.
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