Rupee hovers around record low, stocks gain

KARACHI: The rupee weakened on Friday to close near a record low hit earlier in the week, and dealers said the local currency was likely to hover around current levels in the near-term.

The rupee ended at 86.54-57 to the dollar, weaker than Thursday's close of 86.48-53. It closed at a record low of rupee 86.56-58 on Wednesday.

"There have been a lot of payments in the last few days, especially for oil imports as well as for some debt repayments, and that has significantly pushed up demand for the dollar," said a dealer at a foreign bank.

"Although dollar inflows have been quite steady, the increased demand has left the inter-bank market short of dollars," he said.

"I think the pressure on the rupee will continue for a few days."

Dealers said dollar payments are typically higher in July and August because of stronger oil demand and debt payments. As well as oil payments, the International Monetary Fund's (IMF) stalled aid programme to Pakistan is also weighing down the rupee.

The IMF has criticised the government for its patchy implementation of fiscal reforms and has held back the sixth trenches of an $11 billion loan programme since August last year.

IMF and Pakistan officials were due to meet this month but the meeting has been delayed and no new date has been announced.

This month, the US confirmed it would hold back $800 million in aid to Pakistan, nearly a third of its total security aid, in part because Pakistan had expelled American military trainers and imposed other limits on visas for US personnel.

Foreign direct investment has also been falling, dropping 26.8 percent in the 2010-11 fiscal years to $1.573 billion from $2.150 billion in the same period last year.

But Pakistan's current account surplus gives the country some sense of financial security though analysts said it might not last for much longer.

For the 2010-11 fiscal years the government posted a provisional current account surplus of $542 million, the first full-year surplus after seven years of deficits.

Dealers said increased remittances from Pakistanis working abroad have also supported the rupee and shielding the currency from a sharp fall.

According to official data, remittances rose to a record $11.2 billion in the 2010-11 fiscal years, an increase of 25.77 percent from the previous year.

In the stock market, the index gained as investors took advantage of lower prices and accumulated stocks after the market fell for four days in a row.

The Karachi Stock Exchange benchmark 100-share index 0.76 percent, or 92.32 points, higher at 12,190.37 on turnover of 46.16 million shares.

In the money market, overnight rates ended at 13.75-13.90 percent, little changed from the previous day close of 13.90 percent, dealers said.

Copyright Reuters, 2011