KARACHI: Selling of dollars by many cash-starved banks to generate liquidity has mounted pressure on the rupee against the greenback, said industry sources.
On the other hand, the government on Thursday announced to raise Rs775 billion through Treasury Bills and Rs150bn through Pakistan Investment Bonds (PIBs) in the next three months (December to February).
Money market dealers said the market is short of around Rs200bn. If the government keeps pressure on the banking industry for its borrowing, the situation could be aggravated. The government has so far been borrowing solely from scheduled banks.
According to new borrowing calendar issued, the government plans to raise an additional Rs272bn (total Rs775bn) through T-bills as their maturity during the next three months will be around Rs502bn.
This shortage has been causing damage to the private sector borrowing. The economy would also suffer due to extremely low supply of liquidity as visible through year-on-year monetary expansion of just 0.03 per cent during the last five months.
As for PIBs, the government’s target for the previous quarter was also Rs150bn which it raised in the first auction.
The outflows of liquidity towards the government would help the banks to earn easy money but they would not help the economy to benefit from relatively cheaper money available after policy rate cut in mid-November.
“The liquidity shortage has forced many banks to sell their dollars in the market which cut the dollar demand and the currency lost up to 10 paisa on Thursday,” said Atif Ahmed, a currency dealer in the inter-bank market.
The State Bank injected Rs383.5bn on Nov 21, Rs342.8bn on Nov 28 and Rs88.6bn on Dec 1 into the banking system, reflecting the increasing liquidity shortage.
Ahmed said the currency market is ready to see a significant fall in the dollar price by the middle of this month, mostly on the back of $1bn sukuk inflows and an expected IMF tranche of $1.1bn. “With the falling inflation due to steep fall of oil prices, the investors have been looking for shares market or property which is a prime reason for ‘less investment’ in the US dollar,” said Anwar Jamal, a currency expert and dealer in the open market. He also thinks the dollar may fall below Rs101 by the end of this month.