S.KAMAL HAYDER KAZMI,
Research Analyst, PAGE
Dec 3 - 9, 2012
Modeling of exchange rate behavior is one of the unsolved issues of research to be dealt with. Due to the enormous significance of the exchange rate in an economy, no one can deny the need to understand the behavior of foreign exchange markets. Changes in exchange rate have pervasive effects, with consequences for prices, wages, interest rates, production levels, and employment opportunities. .
DOLLAR RATES IN PAKISTAN-2012 (months ended)
MONTHS JAN FEB MAR APR MAY Buying 90.15 90.9 90.5 91.3 92.8 Selling 90.5 91.2 90.8 91.6 93.4 . JUN JUL AUG SEP OCT Buying 95.8 94.7 94.7 94.75 95.15 Selling 96.2 95 95.05 95.05 95.5
Pak Rupee against US Dollar has depreciated more than 700 per cent since the introduction of managed float exchange rate arrangement in Pakistan starting from 1982 to 2010. This means Pakistan Rupee is continuously losing its value against Dollar. This situation is almost true for the behavior of Pakistani Rupee against other worldwide used foreign currencies. Exchange rate between Pakistani Rupee and US Dollar was 10.39 in January 1982 and 85.68 in December 2010. Minimum rate during this period is 10.39 and maximum value is 85.68. There is more than 700 per cent decrease in the value of Pakistani Rupee against US Dollar. Standard deviation of Rupee-Dollar exchange rate is 21.7598 and co-efficient of variation is 0.5384 which seems very high. Exchange rate has shown the tendency to rise from 1982 to 2001 and started declining in late 2001 till mid 2005. Since 2005, it has been rising up till now.
Since the current fiscal year 2012-13 started, the rupee lost nearly two per cent or Rs 2 versus the dollar in the interbank market at 96.05 and it also shed Rs 3 or three per cent at 97.00 in relation to the dollar in the open market.
An apparent reason is that inflows remained precarious putting more pressure on fast depleting foreign exchange reserves and destabilizing exchange rate regime. The financial turmoil in the world, particularly in the US and the European countries, which caused a drastic cut in Pak exports, especially in the textile sector. The basic sources of inflows nearly dried up, fall in foreign direct investment (FDI) due to poor law and order situation in Pakistan and partly because of world recession, decline in exports and remittances are not sufficient to narrow the gap of the balance of payment (BoP). The small local investors, who are not able to do business, they have no choice, except buying of dollars, is also creating dearth of dollar.
During August 20, 2011 the rupee closed at 86.95 to the dollar, which was its weakest ever closing. Owing to this increasing $/PKR disparity, cellular companies were to witness losses, or slow down, of their international roaming (IR) business in the lucrative seasons of summer vacations and Umrah, because they paid their dues in dollars to their parent companies. Umrah and Hajj, these two particular events bode well regarding IR business for the cellular industry.
More recently, the Pakistani rupee during November 28, 2012 was recorded weaken at Rs 96.6 to the dollar, compared to previous close of Rs 96.08. The currency has remained under pressure due to debt servicing to the International Monetary Fund (IMF). Pakistan recently repaid $ 394.3 million on an IMF stand-by arrangement loan. The country has to pay $3.4 billion in 2012-13, $3.43 billion in 2013-14 and $1.35 billion in 2014-15 to retire IMF's loan. The country's foreign exchange reserves will continue to face pressure due to debt servicing in the next three years. When BoP crisis is being predicted after March 2013, as country's forex outflows are likely to remain at $1 billion per month, which may force Pakistan to negotiate a fresh IMF programme if pressure is not arrested. According to the State Bank of Pakistan (SBP), the total liquid foreign reserves held by the country stood at $13,814.2 million on November 16.
It is believed that major issues will remain for long like; Pakistan could not reduce oil import bill till the complete resolution of the ongoing energy crisis, which is not going to happen in the near future, while the security situation is deteriorating day by day. It is important to mention here, in August 2010 the rupee closed at Rs 85.68 against the dollar.
In the country, food and non-food items prices (charges, fees) have increased in October-2012 as compared to previous month, which are; eggs (17.32%), onions (9.52%), fish (3.31%), honey (2.94%), beans (2.01%), fresh vegetables (1.98%), sugar (1.27%), readymade food (1.24%), cereals (1.00%), bakery & confectionary (0.95%), personal equipments (2.92%), woolen readymade garments (2.29%), doctor (MBBS) clinic fee (1.97%), cleaning & laundry and house rent (1.89% each), kerosene oil (1.79%), marriage hall charges (1.77%), readymade garments (1.61%) and dopatta (1.52%).
The government must come forward with its tools to cool down the aggressive mood of the dollar rate. The weakening of Pakistani rupee increases the poverty level and it is seem that the crowed of baggers is increasing day by day in the country which involve them in corruption. As the Pak rupee value falls, the real value of money and the purchasing power of consumers also fall.
INFLATION IN PAKISTAN (Base 2007-08)
INDEX AVERAGES JULY-OCTOBER % CHANGES OCTOBER OVER OCTOBER % CHANGES 2012-13 2011-12 2010-11 2012-13 2011-12 2010-11 CPI 8.76 11.34 13.86 7.66 10.97 15.33 SPI 7.64 9.58 16.91 6.75 6.50 20.77 WPI 7.58 17.80 18.45 7.55 15.41 19.50