LAHORE - The rupee onslaught on dollar continued which plunged further on Wednesday to 97.3 per US dollar before closing at Rs98.1 in interbank and Rs98 in the open market, panicking the speculators, dollar holders as well as the exporters, who think the whole tendency is manipulated and short-term as the central bank is no more an independent regulatory body.
However, majority of the financial experts said that better forex management by the SBP and a crackdown on currency speculators, besides growth in remittances, improved exports and reduction in import bills through deferred payment, helped the rupee’s impressive recovery.
With buyers almost absent from the currency market, the greenback might further drop against local currency, as the dollar witnessed a cut of Rs2.40 in a single day on Wednesday in the open market, experts say. Economists are expecting an ease in the prices of consumer goods, including petrol rates as well as power tariff because with the rupee gaining against dollar, the goods that the country imports will be available at cheaper rates.
Money market experts said that the local currency, marking the strongest appreciation of the last 30 years, has gained over 8% against the dollar since November 2013 when the rupee-dollar parity in the interbank market reached a high of Rs109. They said rupee’s gain owes most to SBP’s better management and introduction of stricter discipline in the forex market. Moreover, the foreign investment agreements including $20 billion deal with China on energy sector signed by the present govt has also fuelled optimism about exchange rate stability.
Exchange Companies Association of Pakistan Chairman Malik Bostan said that last time rupee experienced such a huge appreciation after the 9/11 attacks when it gained more than 6.2% against the dollar in Dec 2001. He said in the past, rupee was artificially depreciated and the greenback doubled its worth from Rs60 to Rs109. The present collapse of dollar is natural and not due to the efforts of the government, he added.
Sohail Khan, former SVP of the HBL, said the depreciation of the dollar would result in massive reduction in cost of imports and the banks were already expecting the dollar to fall below Rs100 mark, as there was no hurdle in the free fall of the dollar because exporters and investors were selling their holdings quickly.
Former Finance Minister Dr Salman Shah said that after many months the rupee has hit the mark of Rs100-a-dollar, gaining eight percent in a couple of months, reducing foreign debts of Pakistan by almost Rs700 billion. Moreover, the country’s foreign exchange reserves have increased to $9.5 billion, he added. The continued stabilisation in the value of rupee will be instrumental in cost of imports and help reduce the price of commodities but this effect will not appear very soon and it will take some time to benefit general public, he said. He maintained that release of the stalled Coalition Support Fund, forex inflows under the IMF loan and from some friendly countries like China, UAE and Saudi Arabia played a key role to strengthen rupee.
Noted economist Dr Ashfaq Hassan said that forex reserves, which had squeezed by 28 per cent to $7.99 billion in January 2014 from $11 billion of June 2013, improved to $8.74 billion – helping the local currency to gain. He said that equity market, which also gives some reflection of the country’s economy, had continuously been showing positive signs.
Dr Ijaz Nabi, noted economist and adviser to Punjab CM on economic affairs, observed that though foreign direct investment remained flat, several agreements have been signed with foreign companies, promising to pump in several billions of dollars into Pakistan’s economy in the medium term. He said that the proceeds from the spectrum auction will play a key role in strengthening the rupee’s value against the dollar in long-term.
Ijaz said that money markets tend to overreact to good news sometimes. The exchange rate, to be established in three to four months, largely depends on the realisation of inflows that Pakistan expects to receive by June. He said the country expects to receive loans of about $1 billion and $500 million from the World Bank and the Asian Development Bank, respectively, before the end of the fiscal year. Another $550 million from the IMF along with $500 million raised through the issuance of Eurobonds is going to pump Pakistan’s foreign currency reserves, he added.
While the rupee’s strength will help contain inflation and bode well for Pakistan’s foreign debt profile, it will adversely affect the country’s export growth. According to Rice Exporters Association former vice chairman Samee Ullah Ch, the recent improvement in the rupee-dollar parity is going to result in erosion of revenue in export earnings, including rice, textile and leather etc. He questioned “what we are trying to achieve” with a stronger rupee. “Many of our exporters including like rice, textile and sugar have very thin margins. How can they compete with other regional traders if the rupee appreciates 5-7 percent in a week?”
Samee criticised the interference of the government in money market, lifting the local currency artificially which will impact negatively on the economy in the long run. Let the market run freely without any government influence to attract foreign investors. The artificial hike in rupee value to lower exports growth, leading to trade deficit and impacting negatively on economy, he said. Ch Samee said that the rice exporters alone will default the exports contracts of at least $400 millions just due to this short-term forced appreciation of rupee. Money experts are also of the view that that value of the local currency must go in tandem with the country’s Real Effective Exchange Rate (REER). They said that the exchange rate must not be enforced by regulators rather it should be well-matched to the Real Effective Exchange Rate. While calling for a strategy to provide protection to exporters and maintain a stable rupee, the Lahore Chamber of Commerce and Industry President Engineer Sohail Lashari said that the rupee stabilisation would benefit the masses.
He said economy has now started showing upward trends but to maintain these trends the government would have to take extraordinary measures so that all the sectors could get equal benefits.
At the same time the finance minister should come up with some package of incentives to exporting sector as their margins have fallen sharply due to decrease in dollar prices, Lashari demanded. He said that the Indian government gave a 2% rebate to its exporters when the European Union granted GSP Plus Status to Pakistan.