Rupee falls to all-time low versus dollar

[Naveed Yaseen]

By Mushfiq Ahmad
KARACHI: The dollar rose above Rs 74 against the rupee on Monday because of increasing demand for the US currency, said bankers.

The dollar rose from Rs 72.55 on Saturday to 73.35 in the interbank dealings. At one stage the banks were selling/buying dollar at Rs 73.80 as well, said a banker. Importers’ buying rate was even higher, rising beyond Rs 74.

“The rupee continues to weaken not only because of weak economic fundamentals, but also because the political scenario is confidence-shaking,” said another banker.

Another banker said there was demand for dollar not only for import payments but also for debt servicing.

Debt servicing also takes away a big chunk of foreign exchange available in the country. Combined with increased payments for commodities’ and services’ import it has almost halved the country’s foreign exchange reserves. The country paid $3.029 billion to service its debt during 2007-08.

According to State Bank data, the country’s trade deficit—the gap between imports and exports—was $21.588 billion during the last fiscal year, which created a huge shortage of dollar in the country and resulted in sharp erosion of rupee’s value.

Despite the measures taken by the PPP’s government to control the growth of imports, the country recorded a trade deficit of $1.64 billion in July, which was 49.19 percent higher than that of July last year. And the central bank is facing serious problems in meeting the demand for dollar because investment flows from abroad have declined and the government has not been able to launch any bonds in the international market. Besides, the privatization process has come to a halt, which could have attracted some foreign investment.

The State Bank has introduced many changes in its foreign exchange regulations; they helped for sometime, but since the fundamentals continue to be weak, the rupee has again started losing value.

The central bank’s repeated interest rate hikes were also aimed at supporting rupee, but as these measures failed to achieve their main objective—that of controlling inflation—it also failed to lift the rupee.

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