Dollar makes a new high of Rs 97 in open market

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Forex Research - Daily US Dollar Report

The dollar touched a record-high level of Rs 97 for buying against the rupee in the open market and Rs 96.60 for buying in the interbank market on Thursday.

In the open market the dollar increased by 10 paisas in a day and closed at Rs 97 for buying and Rs 97.05 for selling against the rupee.

Currency dealers said the local currency has slipped by Rs 7 against the dollar from December 31, 2011 on back of falling foreign reserves, low import bill volumes and high demand of dollar in the local currency markets mainly for the imports of crude oil, palm oil, industrial raw material and commodities. During July-November 2012, the local currency depreciated by around Rs 1.40 against the dollar, they added.

During July-November 2012, the country also witnessed fall in foreign exchange reserves, which were down at 28-month low to around $14.45 billion with widening current account deficit nearing $4.2 billion, currency experts said.

The local currency has depreciated by more than 8.0 percent so far since the beginning of the current financial year on swelling imports bill and payment of International Monetary Fund’s (IMF) Stand-by Arrangement (SBA) facility instalments.

The government’s borrowing from State Bank of Pakistan up till November 15, 2012 and absence of foreign inflows in the economy are also one of the major reasons for downtrend in the local currency value. The government’s debt stood at more than Rs 12,100 billion on November 15, 2012 which is double against Rs 6,370 billion during the corresponding period of last year.

Minting money to cater to the need for circulating money worth around Rs 1 billion is also peril for the fragile economy as the government has already projected current account deficit of $4.9 billion for the next financial year along with repayment of $2.6 billion to IMF as against $8.7 billion SBA facility.

The government is still busy in borrowing and minting currency equivalent or more than 2.5 percent of the gross domestic product in the absence of revenue generation resources from taxes, privatisation and foreign aid in 2012-13, currency dealers lamented. The rupee will likely set a new record in the next financial year on the pressure of macro-economic indicators, he added.

Import bill payments, crude oil cost and pressure on foreign exchange reserves was also affecting the overall economy of the country. Despite many assurances to IMF, the government failed to implement key benchmarks agreed with the IMF, bringing the central bank’s borrowing to a desired limit, enforce general sales tax on goods and services in integrated mode, eliminate power sector subsidies and keep the budget deficit within the agreed limits.

The borrowing was root cause putting pressure on macroeconomic stability and core inflation accelerated to 11.7 percent in October 2012, they added.

Moody’s earlier highlighted weak government finances, structural inflationary pressures and domestic political uncertainties were adding to Pakistan’s external vulnerabilities and debt sustainability, compounding the downward pressure on sovereign creditworthiness.

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