Pakistani rupee continues to slide on global turmoil

Karachi: The Pakistani rupee continued its downslide on Thursday because of the global financial crisis and concern about tension between Pakistan and the United States over US attacks on militants in Pakistan, dealers said.

Dealers also said the market was short of dollars because of the central bank's buy/swap operations. The central bank has been buying dollars in the ready market with a simultaneous commitment to sell them back in future, they said.

"There is panic in the market right now because there is a shortage of dollars," said a Karachi-based currency dealer.

Dealers said the rupee was traded at a record low of 77.72 to the dollar and closed at 77.65/75. The previous record low was 77.65 set on Wednesday when it closed at 77.18/23.

"One of the main reasons is the global financial crisis where some foreign banks have been asked to cut down their exposure in Pakistan," said another currency dealer.

The rupee has lost 20.7 per cent against the dollar this year, largely because of a deteriorating balance-of-payments position.

Dealers said the market was also nervous about the situation on the Afghan border after a US missile strike killed five militants in Pakistan on Wednesday hours after the top US military officer said the US would respect Pakistan's sovereignty.

Dealers said the prospect of strained relations with Pakistan's biggest bilateral donor was unsettling given the need to build foreign currency reserves that were down to $8.91 billion in the week that ended on September 6. Analysts said $8.91 billion was not even enough to cover two full months of imports.

Reserves were at a record high of $16.5 billion in October last year.

Some inflows are expected in coming weeks, including $1 billion from the World Bank and $500 million from the Asian Development Bank (ADB).

An expected Saudi oil facility would also help Pakistan save foreign exchange. But all of these have still to materialise.

Aside from dwindling reserves, Pakistan's macroeconomic numbers are dismal and growth is slowing after six strong years.

Indian Rupee cuts its losses

The Indian rupee trimmed losses to close at the day's high yesterday helped by dollar selling by the central bank and a recovery in the local share market, which slumped more than five per cent in early trade.

The partially convertible rupee ended at 46.42/43 per dollar, still 0.2 per cent weaker than its 46.33/35 at close on Wednesday. On Tuesday, it fell to 46.99, its lowest since July 2006, according to Reuters data.

"Stocks turned positive and with steady dollar selling by the central bank, more inter-bank participants and corporates are now looking to play from the sell-side," a senior dealer with a private bank said.

Dollar demand from oil firms continued to pressure the rupee downwards, dealers said. Refiners, the biggest buyers of dollars in the local currency market, have been trying to meet import requirements, as oil prices have started rising again.