Massive dollar buying set to depreciate rupee

KARACHI: The foreign exchange market may see another massive dollar buying form Monday after the private sector was given responsibility to pay 50 per cent oil import bill from August 1. Experts and dealers see depreciation of the rupee amid massive dollar demand by the private sector, which has already indicated its presence.

The State Bank of Pakistan under the agreement with the International Monetary Fund (IMF) is gradually shifting the load of oil import bill payment to private sector.

Dealers said the import of diesel and furnace oil would bring a demand of about $5 billion from the private sector while the total forex reserves of banks stand at $3.4 billion.

‘There is no doubt that the market will see aggressive dollar buying during the current year and that will escalate the price of the US currency,’ said Atif Ahmed, a currency dealer.

Experts on exchange rate were sure that the rupee would lose against the US currency but were not able to assess the quantum.

‘The depreciation looks imminent but it depends on the inflows of dollars in the local market,’ said a brokerage house researcher.

‘If the oil prices remain constant at the current level and inflows improve then it will have low level effect on exchange rate,’ said the researcher.

However, analysts observed that the exchange rate scenario was not good for the US currency in the global market which means that dollar might lose weight against the international currencies that would have positive impact on the rupee.

Analysts said the recession in the US was still not over while the low oil prices had reduced the dollar demand in the global market which could reduce the dollar valuation in the coming months.

If the remittances remain on the higher side as they were in 2008-09 and inflows from IMF continue, the exchange rate may see stability despite higher dollar buying by the private sector, currency dealers said.

‘The dollar buying will surely involve speculative forces which would create some destabilisation but it could be checked with higher inflows,’ said Atif.

However, it was observed that the country’s reserves had been declining since the first week of July, which is alarming especially when the private sector has gotten a major role in the exchange rate mechanism.

The State Bank had taken charge of paying oil bills in July 2008 to protect the exchange rate from speculative forces which caused serious damage to the value of rupee.