The rupee refused to accept further vulnerability versus dollar on the back of increasing inflows after minor fluctuations last week ending on August 15, 2004, currency experts said.
In the inter-bank market, the rupee recovered five paisa in terms of dollar for buying and selling at Rs 58.78 and Rs 58.81, whereas it managed to gain six paisa versus dollar in the open market for buying and selling at Rs 59.08 and Rs 59.13, respectively.
Versus the euro, the rupee fluctuated modestly to close with 50-60 paisa loss for buying and selling at Rs 71.85 and Rs 72.15, respectively.
According to weekly statement of State Bank of Pakistan, foreign exchange reserves rose by four million dollars to 12.098 billion dollars, boosted by increase in the inflows.
Apparently, it looked that the rupee was on the recovery path but, in fact, it is not like that, they said. The widening trade deficit as a result of rising oil prices in world markets and high import bills are pushing up the demand for dollar. Oil prices in the international markets touched the new high at 46 dollars per barrel, and this factor was causing the rise in the rate of dollar, dealers said.
Besides, inflation rate again is showing upward trend for the second month running. In the meantime, the SBP Governor said that inflation would be contained by controlling the prices of essential commodities.
He also said that the falling trend in the rupee was not very unusual because it had gained strength a lot. It was necessary to tackle the world competition to achieve the desired exports target, experts said.
Explaining the rupee's slight recovery in the market, they said that a few positive factors rescued the rupee. One of the leading factors was the less buying interest by importers, who for a while seemed to be in a relaxed mood after slight recovery in rupee value. They said that in fact importers' lack of interest in buying dollars enabled the rupee to resist further erosion.
The importers may not keep away from the market as long as some payments are still in hand, experts observed. This factor again can build pressure on the rupee in respect of dollar, they said. However, if demand for dollars did not increase, the rupee would be able to trade within the range of Rs 58.80 to Rs 58.90 in the near future, they said.
In addition, the exporters, who were on the sidelines in anticipation of better return, were back in the market and had started selling export proceeds, they added.
The State Bank's indication that it would keep the rupee below Rs 59 level also provided a boost to the local currency, they said.
Basically, the fundamentals are mixed as according to the Consumer Price Index (CPI), as a result of upward trend in the essential items, the inflation soared to 9.33 percent in July 2004, up from 8.45 percent in June 2004.
Owing to surge in oil prices globally, the import bill went up by 37.24 percent in July to 1.372 billion dollars against 0.990 billion dollars during the same month of last year.
Strategists were of the opinion that to revive the economic activity in the county, the government had to cut the interest rates some time back. They said that as a result of increase in money circulation because of an abrupt rise in the prices, the central bank would have to step in to raise the interest rate in near future.
On Tuesday, the rupee commenced the business on a firm note, showing no big change in its overnight levels versus dollar at Rs 58.91 and Rs 58.94, dealers said. However, at close it managed to gain four paisa versus dollar for buying and selling at Rs 58.86 and Rs 58.90, respectively.
According to market sources, two factors led the direction: first, the expectations of the State Bank of Pakistan (SBP) intervention, and second, the news that Pak-Arab Refinery had rolled over 100 million dollars swap maturity which helped the rupee to make up some losses.
In the meantime, some sporadic dollar selling by exporters and banks also eased pressure on the rupee.
Despite firm trend in the market, experts were of the opinion that the rupee might not maintain its firmness as a result of fresh buying by importers.
The State Bank sold dollars as the rupee touched the low level at Rs 59.30 and had depreciated 1.5 percent versus dollar during two weeks. However, SBP intervention fears helped the rupee to resist further fall versus dollar.
On Wednesday, despite exporters' dollars selling, the local currency shed two paisa against dollar in the inter-bank market for buying and selling at Rs 58.90 and Rs 58.92, respectively.
In a fresh move to keep the rupee at a certain level, the SBP injected 10 million dollars.
On Thursday, an increase in foreign exchange inflows and the State Bank's signal that it would keep official rate below the Rs 59 level in the inter-bank market supported the rupee which recovered 12 paisa in a single day rally at Rs 58.77 and Rs 58.80, respectively.
According to market sources, dollars and export inflows and importers' lack of fresh interest in dollar buying enabled the local currency halt more slide in its value. The banks bought nearly 25-30 million dollars to meet debt payment requirements, they added.
On Friday, the rupee held on to its overnight levels in terms of dollar.
On Aug 13, the rupee gained four paisa versus dollar for buying and selling at Rs 59.08 and Rs 59.13. Versus the euro, the rupee gained 30 paisa for buying and selling at Rs 71.85 and Rs 72.15. All commercial centres remained closed on Aug 14 on account of Independence Day holiday.