KARACHI: The US dollar rose further against the rupee in the inter-bank market on Tuesday, with currency dealers describing it as a deliberate attempt by the government to devalue the local currency.

Since the last week of August, when the dollar made sharp gains against the rupee, the inter-bank market was well under control of the central bank and the US currency was not allowed to cross Rs104.50 despite higher demand.

“It appears like August replay. The dollar was set free to locate its value in the inter-bank and within minutes it started rising against the local currency,” said Atif Ahmed, a currency dealer in the inter-bank market. “The dollar closed at Rs105.25 on Tuesday compared to Rs104.40 a day earlier.”

The latest rise in dollar’s value has stretched rupee’s depreciation to 3.5 per cent since July 1.

Ahmed said the sudden appreciation of the US currency created a rush of buyers to cover their imports. “The dollar will open at Rs105.25-35 on Wednesday,” he said.

Chances are slim that the dollar would slide back, currency dealers say, citing its steady position since a big single-day surge of 2.3pc on Aug 24.

“The earlier devaluation of the rupee was manoeuvred to support exporters. Falling exports have probably forced the government to appease the exporters’ community a little more,” said a currency expert.

There is said to be pressure to devalue currency from the IMF as well.

“Most emerging and regional currencies have depreciated substantially. In comparison, the rupee seems to be overvalued by about 5pc,” said Eman Khan from Tresmark.

However, traders are not expecting a sharp decline and the rupee looks like finding support around the 106 level, he added.

Faisal Mamsa of Landmark Capital said, “Taking into account the actual depreciation in major currencies, we estimate that the fair value of the rupee based on productivity adjusted REER [real effective exchange rate] has shifted to 106-108 range from 102-104 earlier.”

Real effective exchange rate is the nominal effective exchange rate — a measure of the value of a currency against a weighted average of several foreign currencies — divided by a price deflator or index of costs.

Published in Dawn, October 28th, 2015

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