Financial year 2003-04 saw the rupee losing sizeable ground due to unexpected increase in the value of dollar, experts said.
In the open market, the rupee drifted lower and shed nearly 60 paisa from Rs 57.85 to Rs 58.45.
In line with the open market, the local currency slid and shed around 35 to 40 paisa in the inter-bank market from Rs 57.76 to Rs 58.12 during the year.
The rupee also lost almost Rs 6 versus euro from Rs 65.75 to at Rs 70.50.
Widening trade deficit, rising imports, foreign debt payments, termination of Saudi oil facility (SOF) for credit, and a significant fall in the inflows of foreign exchange from overseas Pakistanis were the leading factors for the declining value of the rupee.
According to banking sources, pressure may further mount on the local currency as a result of continued demand for dollars in the market.
Market sources attributed the rupee's fall to upward trend in oil prices in the international markets, which pushed the oil payments higher. Recently, the SBP said that termination of SOF would increase the forex requirement for oil imports payment.
However, towards the end of the fiscal year the gap between inter-bank and open market rates started narrowing from a rupee to 40 to 50 paisa. Consequently, market players were hoping that the remittances may pick up as the expatriates might start sending dollars through official channels in the coming days.
During the third quarter of outgoing fiscal year, inflationary pressure was on the rise following surge in wheat prices in local market as wheat production declined on insufficient rains and infection in wheat growing areas.
In order to keep inflation rate at a certain level, the SBP might increase interest rate slightly in the future. But on the other hand, some currency viewers were of the opinion that the central bank may not take that risk to continue its reform programme and business activity in the country.
According to a report, the central bank is considering several proposals, including World Bank's offer to lower interest rate, to improve domestic business activity.
The World Bank observed that sliding of real interest rate from 6 percent to 4 percent would save interest payment equivalent to one percent of the Gross Domestic Product (GDP). The average interest rate peaked in 1999-2000 at 10.8 percent and slid to 5.6 percent in 2002-03.
In May and June, as a result of widening trade deficit, the rupee tumbled as the corporate sectors increased dollars' buying for regular external debt servicing as well as for prepayment of foreign loans, analysts noted.
The country's foreign exchange reserves showed handsome recovery after reaching at 12.526 billion dollars in the middle of May 2004, analysts said. However, in June, reserves came down to 12.308.6 billion dollars on rising dollars' demand.
They attributed the slide in foreign exchange reserves to a significant fall in the remittances from the US and Saudi Arabia.
In the meantime during the period of major payments, the SBP tried its best to put pressure on market players to manage the situation through market mechanism, they said. The central bank warned them to arrest the artificial hike in US currency, they observed.
In fact, according to the bankers, marginal erosion in rupee value did not propel country's monitoring team to make any move in the currency regime. As compared to other currencies in the region, the rupee maintained a firm posture versus the dollar after the 9/11 incident, currency viewers said.
According to some foreign analysts, most of the currencies in Asia suffered amid uncertainty about higher trend in oil prices, they said.
Confusions over the interest rate in the US and signs of weakness in China's economy are likely to hurt the regional growth outlook, they predicted.