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December 4, 2018

Rupee claws back some of its losses on SBP’s helps


December 4, 2018

KARACHI: The central bank’s instruction to the banks to refrain from selling rupee beyond the 137-139 levels helped the battered local currency recover around one percent against the US dollar in the interbank market, traders said on Monday.

The traders said the rupee ended stronger, recovering from an all-time low in the previous session after the central bank asked banks not to sell the greenback beyond 137-139 levels.

The rupee closed at 137.84/dollar, a 0.87 percent or Rs1.16 higher than the Friday’s close of 139. The rupee’s 7.5 percent plunge in an intraday trade in the previous session was its biggest single-day slide in almost a decade, although it closed around four percent down.

“The currency has recovered some of its losses,” one foreign exchange dealer at a bank said, requesting anonymity. “However, the market remains volatile.” The banker said the market traded in the ranges of 136.90-139.50.

“It could have breached the 140 per dollar level if the central bank didn’t intervene into the market,” the banker said. In the open market, the rupee lost some grounds on Monday, trading at 138.50 against the dollar. It hovered at 138.10 on Friday.

Most of the traders believed the State Bank of Pakistan (SBP) wouldn’t allow the rupee to break the present levels in the near-term. But, they were skeptic over the future role of the central bank in regulating the currency market given the Prime Minister Imran Khan’s reported comments that government would ask the central bank to take its advice over the exchange rate policy.

“Increasing influence of the ministry of finance in the exchange rate policy formulation and regulation could undermine the SBP’s independence,” a senior analyst said, fearing a dreaded departure from market-based flexible exchange rate system that has been in place since May 1999.

“The SBP is moving closer to the free-float exchange rate, where market plays a decisive role in rupee in line with the IMF (International Monetary Fund) demand. This is the central bank that manages external sector and regulates the exchange rate,” the analyst said.

The SBP’s chief spokesman declined to comment over the issue. People in the central bank’s circle too expressed unawareness about any such new mechanism when asked about the market reports.

Former caretaker finance minister Salman Shah, however, said a free-float market looks to remain volatile. “The SBP needs to improve its forecast about the inflows and outflows of dollars on a daily basis to ensure the smooth functioning of the market,” Shah added.

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