KARACHI, Nov 27: Pak rupee on Tuesday continued to fall against the currency (greenback) itself falling against the major world currencies reflecting the weakness of the economy under threat of imported inflation.

Analysts said the weakening rupee was inflationary in its nature as imports became costlier carrying double impact as ‘inflated oil and commodity prices’ touched record highs.

On Tuesday the rupee fell further to Rs61.29 per dollar slashing about 50 paisa against the greenback during a week. It was at three-year low against the greenback.

“Dollar’s strength against rupee is inflationary since it makes imports expensive,” said an analyst. “Since our trade balance is negative we are in effect importing inflation,” he added.

However, the weaker rupee would not benefit the exporters as the dollar itself losing against major international currencies like euro, pound, Canadian dollar and Japanese yen.

Weaker dollar provides opportunity to European and other stronger currencies to buy cheaper products from America while the same American products became costlier for Pakistan.

“This is a highly negative situation as the Pakistani exporters find that the US products are facing competition in the markets like European Union, Japan and China,” said Saleem Abbasi, an exporter.

Pakistani currency has also been weakening against all major currencies. “The rupee is weaker against the weakening US dollar, which means the rupee is facing double punishment reflecting poor state of economy,” said a researcher and analyst.

The complexity of exchange rate rose further when oil prices crossed all boundaries putting the Pakistani importers in a more critical situation.

“While the crude oil prices have gone up to $100 per barrel, the dollar has become costlier thus creating double negative impact on imported oil prices,” said the analyst.

Importers, who were the front-liner to book dollars in the inter-bank market, said the impact of devalued rupee was wide enough to cover the whole economy. They said the exporters would find it difficult to digest, though they would get more rupees against their dollars. Their imported components would make products costlier.

On Monday the State Bank had warned against the high oil prices and costlier commodities in the international market and termed them highly inflationary.

Additional risks, which cloud global economic prospects, are rise in inflationary pressures given volatile oil markets and rise in commodity prices going beyond precious and industrial metals to foods such as wheat, soybean oil and palm oil that have reached record highs during 2007.

The SBP felt that the weakening dollar has further amplified the oil price surge. Combined with financial turbulence this is now inducing investors to diversify away from dollar denominated financial assets to commodities. This second round impact carries risks of magnifying the inflationary pressures.

In the inter-bank market dollar remained dearer mainly because of daily outflows from the shares market, higher demand because of costlier oil and commodity prices in the world market and declined inflows in the form of direct investment.

Imported inflation will add to the already existing inflation and will cause essential food items more expensive in the country. The food inflation in October was over 14 per cent. The SBP has already sent signals for higher inflation this year.