A nightmare for speculators

LAHORE: Wednesday was a good day for Pakistan, but a nightmare for some exporters who withheld the export proceeds in hopes that the dollar would appreciate further. Many speculators hurried to offload the hoarded greenback on its surprising and swift downslide against the rupee.

It is rare that speculators and manipulators in the currency market are caught off guard. Usually, the run-on Pakistani rupee is big and quick and the US dollar, if it ever depreciates against Pakistani currency, declines slowly.

The slow decline gives the dollar hoarders time to cash their dollars in time at small loss. Rupee value was manipulated in the market by vested interests after realising the inability of the central bank to defend it. The central bank was acutely short of dollars and could not interfere in the market.

First an impression was spread in the market that the International Monetary Fund (IMF) board might not release the $1.17 billion tranche after a staff level agreement was reached with the Pakistani government.

It was wishful thinking as never before a staff level agreement was challenged by the IMF board. The board meeting was delayed because the government of Pakistan was required to slap petroleum levy in monthly instalments as agreed with the IMF staff.

This condition has been fulfilled and the next monthly adjustment in petroleum levy is due in September. The IMF representative finally gave a statement that Pakistan has fulfilled all conditions of the IMF. Still the IMF is waiting for the consent of friendly countries of Pakistan to roll over their loans.

The manipulators knew that this consent would be a formality. The forex dealers estimate that a huge stock of $4 billion was hoarded by different elements.

They could not possibly liquidate this amount by the time the IMF board approves the tranche. They knew after the release of $1.17 billion tranche, the pressure on rupee would wane.

Because it would be followed by substantial dollar inflows from multilateral donors and friendly countries who were waiting for IMF’s consent. There is no way they could have liquidated huge dollar stocks before the IMF meeting.

Another factor that went against them was the decline in imports. Imports squeezed substantially because of two reasons.

First was the decline in global crude oil rates and the decline in the use of petrol and diesel after an increase in their retail prices. The State Bank also acted prudently. It managed other imports by managing to delay the opening of letters of credit on one pretext or another.

At the same time, it did not panic on the run-on rupee. Knowing its low reserves, it did not intervene in the market and stayed cool. The speculators took it as weakness of the central bank, but the bank was in loop about the positive response from the IMF.

The tone of the market is set, and the rupee is expected to regain its strength to the April 28 level. Rupee has already appreciated by over Rs12 against the dollar – the highest ever one day gain in the interbank market.

This is a good omen for consumers. Inflation would gradually come down as would the prices of imported stuff. Things would continue to improve if the central bank remains vigilant and the federal government keeps check on unnecessary imports.