Rupee recovers 25 paisa against dollar

[LRE]

Rupee recovers 25 paisa against dollar



Friday, October 10, 2008
By our correspondent

KARACHI: Rupee made a modest recovery against dollar as forex trade calmed down and confidence was restored in currency market following the State Bank of Pakistan (SBP) decision to reduce Cash Reserve Requirement (CRR) by 200 basis points to 7 percent in phased manner by November 15, 2008.

In this regard, initially, CRR will be reduced by 100 bps to 8 per cent with effect from October 11, 2008. The liquidity position of the banks improved, which wiped out rumours of banks facing default to a large extent. Rupee started off new days trading at Rs79.40 and recovered some grounds against US dollar to Rs78.90 however finally closed at Rs79.15.

The national currency did not show any change versus US dollar in the open market as US currency kicked off trading at Rs79.80, stood unchanged and ended the day at the same price at close of markets on Thursday.

In addition average call money rate was hovering between 16-18 per cent after touching 50 per cent earlier during the week. The money market sources said that improved liquidity position of the banks was the only reason behind sharp declined in overnight rates.

It may be noted that prevailing liquidity crunch was due to the seasonal withdrawal of the deposits from the banking sector on account of Eid. This seasonal woe was also augmented by the negative M2 growth during the same period. As on September 20, 2008 the M2 growth was negative 1.99 per cent, which was positive 0.24 per cent a year earlier.

The first quarter of the fiscal is always the slowest quarter for the Pakistan economy. This time the situation got worst due to continuous outflow of foreign exchange from the system on account of domestic political uncertainty and global financial crisis.

Consequently, NFA (net foreign assets) during period under review was negative Rs166 billion versus negative Rs24 billion a year earlier.Interestingly, the liquidity problem is also evident from the weekly statistics of banking sector which was, as on September 20, 2008, depicting a declining trend of deposits (Rs3.8trillion or one per cent year to date).

This is not an abnormal phenomenon keeping in mind the sluggish economic activities during the first quarter of current fiscal. The disturbing factor was Rs53bn loan to public sector enterprises (PSEs) in addition to Rs29bn credit disbursed to private sector during period under review.

Last year the private sector credit was showing net retirement of Rs36bn while loan to PSEs was Rs4bn only. Consequently, gross advance to deposits ratio (as on September 20, 2008), primary indicator of the liquidity also increased to 79 per cent versus 71 per cent a year earlier and 77 per cent (as of end June 2008). Net advances to deposits ratio was 74 percent versus 67 percent a year earlier and 72 per cent by the end June 20.

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