THE rupee lost about 1.4 per cent during the week ending on December 2 — a trend witnessed throughout November. Bulky import payments of about $700 million drained dollar supplies and the central bank made no move to intervene in the exchange rate movements. Since the beginning of the current fiscal year, the rupee has depreciated by more than four per cent against the greenback. The rupee fell from 87.77 a dollar on November 25 to 88.99 on December 2, as both current and balance of payments accounts started to show signs of weakness, from the beginning of the second quarter. Senior bankers say, the State Bank of Pakistan may now intervene in the forex market anytime before the close of December to let the rupee regain some of its lost value before the end-quarter external debt servicing.

“If you follow the pattern of the SBP interventions, you’ll note that interventions are timed carefully to get maximum benefit in terms of the rupee cost of debt servicing,” said treasurer of one of the top five banks. “That is why we expect that a real and meaningful intervention would be made any time from Wednesday onwards and certainly before the end of December.”

Markets would reopen on Wednesday after the two-day holidays in connection with Muharram.

Head of a foreign exchange company said the rupee closed around 89.20 to a dollar on December 2 after it fell close to 89 in the interbank market. He too saw the SBP intervention on Wednesday to avoid public rush on dollar buying in the open market.

“It’s not the flight of capital, as some people think, which is weakening the rupee. There is a real demand for the dollar in interbank market against low supplies due to faltering exports and growing trade deficit,” he remarked.

Senior bankers said the rupee remained under pressure throughout the week because some banks (including two of the top five and one leading Islamic bank) were constantly buying dollars from the market to cover their short positions. “These banks normally sell dollars in the market on behalf of the State Bank. When they came in for buying, the market took it as a signal that the SBP was either not in a position to intervene or it does not want to do so,” said an executive of National Bank of Pakistan.

Foreign exchange reserves hovering around $17 billion for some weeks lent credence to this view. And then forward and spot dollar buying by importers picked up pace while exporters withheld their export proceeds. “But dollar now around 89 rupees has become quite lucrative for exporters and I think they will come forward to realise their overdue export proceeds from Wednesday,” said one senior official of Habib Bank Ltd.

Some press reports claimed that the central bank had allowed the rupee to depreciate on the insistence of the IMF as the multilateral lending agency believed that the rupee was a bit overvalued. But officials of the ministry of finance including Secretary Dr Waqar Masood denied it.

In its review of monetary policy effective from December 1, the SBP kept its key policy rate unchanged at 12 per cent. The decision is expected to keep interest rates stable amidst signs of faster growth in large-scale manufacturing. LSM output expanded by about 3.6 per cent in the first quarter despite power outages and supply constraints due to floods in parts of Sindh and Punjab in August.

Immediately after the decision KIBOR of different tenures showed a slight upward movement. Benchmark six-month KIBOR was up, for example, by four basis points to 11.96 per cent.

Bankers say that expansion in LSM and financing needs of agricultural and consumer sectors were fuelling credit demand from the private sector, adding that the stock of net negative off-take of the private sector credit which was at Rs110 billion by end of September fell to just Rs9 billion as on November 18.

“This means banks have made fresh advances of Rs101 billion to the private sector between October 1 and November 18,” explained one senior banker.

Industrialists say the SBP move to keep its policy rate intact has added uncertainty to interest rate outlook which, according to them is affecting their businesses negatively.

“Look, transmission of monetary signals is already weak in our economy. When after making one cut in policy rate the SBP puts it on hold the market gets confused and businesses cannot make right projections,” asserted a past-president of the Federation of Pakistan Chambers of Commerce and Industry.