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Currency stability

Rupee is gaining value against the US dollar. It seems that its rate of exchange will stabalise at Rs. 124 for a dollar. With continuing uptrend in its value and positive outlook of the open market saw fresh inflow of US dollars, which further widened the spread between the buying and selling rate of greenback up to Rs. 16. On Tuesday, open market dealers were buying the dollars in the range of Rs. 108-122 and selling in the range of Rs.122-124. “Currency dealers are in panic over the positive outlook of rupee,” said a Karachi based dealer.

Meanwhile the State Bank of Pakistan (SBP) reported that rupee further strengthened by 0.68 percent or Rs. o.86 to Rs. 124.18 against the dollar in the interbank market. Cumulatively, it has recovered 3.36 percent in the past seven days from Rs. 128.5 on Monday. Rupee had lost 22 percent of its value against dollar since December, 2017. Another open market dealer said that they had soled their dollar holdings in the interbank market in the absence of buyers at exchange companies. However, majority of currency dealers may have sold dollars at higher rates despite a significant drop in the demand of greenback. People who were in urgent need of dollars went to the open market and gave the dealers their demanded price.

On the other hand currency investors continued to exit the market on expectation of further appreciation of rupee. At dealer at Habib Qatar International Exchange said, “We have adequate supply of dollars as we have continued to purchase them over the last three four days.” “We are still selling dollars at a lower price than the interbank market which is an unusual situation,” he added.

The currency market has turned positive in support of local currency with China’s lending another $ 2 billion followed by activation of credit line of $ 4.5 billion by the Islamic Development Bank (IDB) and expectations of further fund flows from friendly countries, including Saudi Arabia, and project financing from multilateral lenders. The current uptrend in the rupee value is likely to be short lived as Pakistan will be seeking another International Momentary Fund (IMF) bail out in future; the chances of its approval are slim. The US has openly opposed this financial assistance to its all time ally and the multilateral lender may not favourably process Pakistan’s request.

“Make no mistake. We will be watching what IMF does,” said Mike Pompeo Us secretary of State said in an interview with CNBC. “There is no rationale for IMF tax dollars, and associate with American dollars that are part of its funding, for those to go to bail out Chinese bond holders or China itself,” said Pompoeo. The contents of the interview of the Secretary of State reflect the anger over China’s Belt and Road Initiative (BRI) of which CPEC is flagship project. Moreover, the United States has started a trade war against China.

In response, the Ministry of Finance decried the US secretary of State statement saying that third party can not weaken the country’s resolve in making CPEC a success. This reflects the bottlenecks in processing Pakistan’s request for bail out package. The SPB should keep a close watch on the money market to keep it stable as its previous policy of letting rupee to depreciate created volatility in both interbank and open markets. In order to take benefit of the present currency situation the central bank should spring into action and buy dollars in the open market.

The broad parameters of the roadmap of the upcoming PTI government envisage liberal incentives to the exporters of the country. It also include a meaningful decrease in gas and electricity prices to reduce the cost of doing business and substantially improve the Ease of Doing Business Index which went down from world ranking of 120 to 147 because of the country’s economy hit man Ishaq Dar’s reckless fiscal and monetary policies. Hopefully, the next government will give priority to enhancing the economies of scale in the manufacturing sector by facilitating the induction the fourth and fifth generation technologies and skilled development programmes for industrial workers. These measures are needed to be taken on urgent basis to enhance the quantum of exports at competitive price, giving all time stability to Pakistani currency.

 

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