THE RUPEE: SBP move plays key role

RECORDER REVIEW

KARACHI: As a result of latest move by the State Bank of Pakistan (SBP) to revise the forward cover rules, the rupee came out of the woods during the week ended on December 24, 2011.

In the inter-bank dealings, the rupee rose by 43 paisa versus dollar for buying at 89.12 and 46 paisa for selling at 89.14.

On the open market, the rupee rose by 55 paisa in terms of dollar for buying at 89.15 and it 50 paisa for selling at 89.50. The rupee also appreciated by 21 paisa in relation to euro for buying and selling at Rs 116.24 and Rs 116.74.

Malik Bostan commented that it appeared that the central bank's move played a stabiliser's role in rupee's recovery versus dollar.

He added that Wednesday's cautionary move by the SBP gave an opportunity to the rupee to recover sharply in terms of the US currency in both inter-bank and open markets.

To check the rising demand for dollar, the SBP has attached forward cover booking with letter of credit (L/C) against imports.

Besides, the SBP reported in its annual report that the current high account deficit was a temporary situation. It explained that the deficit of first four months of the current fiscal year at 1.6 billion dollars was because of oil payments.

INTER-BANK MARKET: On Monday, the rupee losing 25 paisa versus dollar for buying at 89.80 and 24 paisa for selling at 89.84 amid persistent buying for dollars by importers.

On Tuesday, the rupee lost 10 paisa in terms of dollar for buying at 89.90 and 11 paisa for selling at 89.93.

On Wednesday, the rupee lost five paisa versus dollar for buying at 89.95 and 7 paisa for selling at 90.00.

On Thursday, the rupee gave up its weakness and gained 30 paisa against dollar for buying at 89.65 and 89.70.

On Friday, the rupee recovered 53 paisa versus dollar for buying at 89.12 and 56 paisa for selling at 89.14.

OPEN MARKET RATES: On December 19, the rupee shed 10 paisa in relation to dollar for buying at 89.80 while it held its level at 90.00 for selling. The rupee , shed 24 paisa versus euro for buying and selling at Rs 116.69 and Rs 117.19.

On December 20, the rupee lost 20 paisa in relation to dollar for buying and selling at 90.00 and 90.20. Versus euro, the rupee shed 10 paisa for buying and selling at Rs 116.79 and Rs 117.29.

On December 21, the rupee lost 20 paisa in relation to dollar for buying at 90.00 and 90.20 for selling. Versus euro, the rupee lost Rs 1.09 for buying and selling at Rs 117.88 and Rs 118.38.

On December 22, the rupee recovered 25 paisa in relation to US currency at 89.80 and 90.00. Versus euro, the rupee picked up 63 paisa for buying and selling at Rs 117.25 and Rs 117.75.

On December 23, the rupee gained 15 paisa for buying against dollar at 89.15 and 10 paisa for selling at 89.50. Versus euro, the rupee gained 34 paisa for buying and selling at Rs 116.24 and Rs 116.74.

On December 24, the rupee gained 50 paisa in relation to US currency at 89.30 and 40 paisa for selling at 89.60. Against euro, the rupee was higher by 67 paisa for buying and selling at Rs 116.58 and Rs 117.08.

OVERSEAS OUTLOOK FOR DOLLAR VS MAJOR CURRENCIES: In the first Asian trade, the dollar bounced against major rivals in Asia, as uncertainty following news of North Korean leader Kim Jong-il's death increased the US currency's safe-haven appeal, Reuters said.

North Korean state television reported the demise of the leader of the reclusive nation, which had begun the process of transferring power to his son Kim Jong-un. The older Kim was said to have suffered a heart attack on a train on Saturday.

The dollar was trading against Indian rupee at 53.00, versus Malaysian ringgit at 3.1790, and in terms of Chinese yuan at 6.354. Inter bank buy/sell rates for taka against dollar on Monday were 80.78-80.84 (previous 80.65-80.73) and Call Money Rates 20.00 percent (previous 14.00-22.00 percent.

In the second Asian trend, the euro inched up, but sentiment was fragile as efforts by policymakers to address the debt crisis were falling short of expectations and European Central Bank chief Mario Draghi has been dashing hopes of any aggressive support.

The euro was up 0.3 percent at $1.3033, above an 11-month low of $1.2944 hit last week and a Monday session trough of $1.2983. The dollar was trading versus Indian rupee at Rs 53.07, against Malaysian ringgit at 3.1880, and at 6.3418 in relation to Chinese yuan. Inter bank buy/sell rates for taka against the dollar were 80.78-80.90 (previous 80.78-80.84) and Call Money Rates: 20.00 percent (previous 14.00-22.00 percent).

In the third Asian session, euro extended gains on short-covering ahead of the European Central Bank's first offer of three-year loans that many hoped would help the region's banks lower their funding costs.

But the European unit also hit an all time low against Australian dollar as improving risk appetite increased the appeal of commodity-linked currencies, and worries about Europe's debt crisis were likely continue to cap gains. Inter bank buy/sell rates for taka against dollar on Wednesday were 80.95-81.30 (previous 80.78-80.90) and Call Money Rates: 20.00 percent (previous 14.00-22.00 percent).

Yuan ended up slightly against dollar after People's Bank of China set a stronger mid-point, with a pullback in dollar index dampening expectations of yuan depreciation. The dollar was trading against Indian rupee at Rs 52.65, and at 3.1665 versus Malaysian ringgit.

In the fourth Asian session, euro languished near an 11-month low against dollar, struggling to make much headway after the European Central Bank's tender brought little respite to funding markets and nudged traders to snap up gains.

The ECB's first ever limit-free, ultra-cheap loans did little to lower the cost for banks to borrow dollars and it was unclear whether the 523 banks that tapped them would lend cash on and boost the ailing European economy, or just sit on it.

The dollar was available against Indian rupee at Rs 52.77, versus Malaysian ringgit at 3.1750, and in relation to Chinese yuan at 6.3395.

In the final Asian trade, euro edged up on US dollar in holiday-thinned Asian trade on Friday, but was still on track to end the year modestly lower as the European debt crisis looked set to last for many more months.

The single currency changed hands at $1.3063, from $1.3050 late in New York and well within the tight $1.3016/$1.3120 range of the past 36 hours.

The dollar versus Indian rupee was available at Rs 52.73, against Malaysian ringgit at 3.1550, and in relation to Chinese yuan at 6.3395.

At the week-end, dollar closed lower against a currency basket, and more losses were likely this week as portfolio managers would rebalance their portfolios for the year-end after gains in US assets.

Because of a rise in US stocks and Treasuries this year, asset managers held more dollars relative to their benchmarks. As a result, they would have to sell dollars to balance their portfolios for the end of the year, analysts said.

Besides, the European debt crisis roiled markets all year, producing the most volatile trading since the 2008-2009 meltdown. That is, except in one market.

Fund managers who bet on a volatile, wild year of losses in the euro were paring back positions against the single currency going into 2012 after its surprising resilience to Europe's sovereign debt crisis damaged their portfolios.

Many still expected market turmoil arising from Europe's debt situation and kept options strategies that would benefit from volatility. But they did put on trades that would pay off as well, if the euro zone recovered from the crisis.