Pressure mounts on rupee as dollar demand surges

KARACHI: The rupee lost about 75 paisa against the US dollar so far and was likely to remain under tremendous pressure since the exchange market was made responsible to bear the burden of oil import bill.
 
‘The old days’ strategy returned to exchange market after the private sector was again given the responsibility to pay entire oil import bill forcing the rupee to depreciate against the US dollar amid sharp surge in demand for the greenback during a week,’ said a currency expert.


The currency traders said the dollar was traded at Rs84.44-46 on Tuesday. It was being exchanged at Rs83.70 on December 6 just before the State Bank announced shifting of oil payment load to private sector.

The experts said market players holding large dollar reserves were avoiding selling and waiting further appreciation of the dollar, which is exactly the same situation of last year when the State Bank had taken back the responsibility of making entire oil bill payments.

The SBP move had helped the rupee to recover from Rs85 to Rs76 to a dollar last year.

Under the new arrangement, the private sector will have to arrange about $10 billion annually to import oil. If the prices go further high, the oil import bill will also increase.

A senior currency dealer said the rupee was expected to fall further against the dollar this week.

He said the speculative forces have entered the market and getting benefit from the uncertain exchange rate.
Analyst said it was not possible for the State Bank to intervene in the market like it had been doing in the past mainly because the volume of dollar-trading had gone beyond the capacity of the central bank.

‘On Monday an oil payment of $65 million was made which shook the exchange rate inviting speculations that more payment would further hike the dollar demand,’ said Atif Ahmed, a currency dealer.

He feared further depreciation of the rupee due to shrinking dollar inflows through foreign private investment, lower export proceeds and deteriorating law and order situation.

Currency dealers said the dollar demand would surge further since the current year was coming to an end and a number of companies would pay dividend and profits to their foreign investors and shareholders.

The repatriation of foreign exchange from the country has been rising for last four years. The State Bank data showed that in the first four months (July-October) of this fiscal year $200 million had been repatriated as profits and dividends.

‘The inflows of US aid and next IMF tranche will help to stabilise the exchange rate but the inflows should rise to deal with the depressing devaluation of rupee scenario,’ said Atif.