Rupee shows sign of stability after meltdown

KARACHI: The rupee, after facing a violent downturn, has recovered about half a percentage point in the past two days to settle at Rs110.09 to the US dollar in the inter-bank market, showing signs of consolidating near current levels, said bankers and money market dealers.

Earlier, the rupee had abruptly lost 4.87%, or Rs5.14, to the greenback in the prior three working days (Friday to Tuesday), hitting an all-time low at Rs110.64.

The movement came after months of stability in the exchange rate and was seen as a strategic initiative apparently on the insistence of the International Monetary Fund.

“I think the market (rupee-dollar parity) has largely settled today (Thursday),” Institute of Bankers Pakistan Chief Executive Husain Lawai said in remarks made to The Express Tribune.

Another banker said the exchange rate seemed to be sustaining near current levels in the short to medium run if nothing major happened in domestic politics.

“Later, it will gradually shed 0.5-1 percentage point every month,” he predicted. “I see the rupee at Rs115 to the US dollar by June 30, 2018.”

State Bank of Pakistan spokesman Abid Qamar denied the talk of central bank’s intervention in the inter-bank market. “If we make interventions, they remain unannounced,” he said.

The market continued to run on the basis of demand and supply of dollars, he emphasised.

Replying to a question, the spokesman said open market operations (rupee injection or withdrawal from the banking system) had an impact on the rupee-dollar exchange rate in one way or the other. However, he clarified such operations were not conducted with the intention of influencing the parity or stabilising the exchange rate.

The central bank injected Rs385.5 billion into the banking system for one day on Thursday. Banks have raised a demand for Rs424.5 billion from the central bank, according to the SBP.

Separately, the central bank reported an increase of $2.006 billion in foreign currency reserves to $20.68 billion as on December 8, 2017 in the wake of Eurobond and Sukuk (Islamic bond) float worth $2.5 billion in the international market. Forex Association of Pakistan President Malik Bostan was of the view “the rupee may recover further in the days to come and will not go beyond the recently tested limits”.

He revealed that the open market released a significant amount of dollars in the inter-bank market after it failed to find retail buyers. “The rupee has recovered in the open market beyond the levels seen in the inter-bank market in intra-day trade,” he said.

The exchange rate remained stable with slight fluctuations in the interbank market. The dollar set at Rs110 against the rupee on Wednesday. This was the first sign of stability in the exchange rate after the local currency lost a massive 4.7 per cent of its value in a week. The dollar in the interbank market opened with higher rates on Thursday touching its peak of Rs110.40, but mostly remaining at Rs110.

Dealers said the local currency dipped even below Rs110 and traded at Rs109.90, though for a short time. Stability in the dollar rate for the past two days has created hope for stakeholders that it may not go further higher. However, most dealers and analysts are still doubtful of the situation. Dealers were unclear about how much devaluation is required to control rapidly increasing imports and boost exports. They said the two-way approach to devalue the rupee would not work. In the past, the local currency was devalued several times but exports failed to meet goals. They said costly dollar could reduce imports.