US dollar sharply up as speculators thrive

The US dollar shot up to Rs 108 and then eased to 105 last week with the Central Bank, money dealers and economists divided over the sharp movement.

The Central Bank pinned it down to speculators and issued a warning while dealers and economists pegged it to uncertainty, oil and defence hardware bills in the market and a possible end to the government’s debt moratorium.

“There is also seasonal demand which pushed the dollar sharply,” one dealer said, however indicating that most of the speculative trading was due to ‘uncertainty.”

On Friday, the Central Bank said a considerable volume of non-priority consumer items are imported on the basis of releasing import documents by banks on the acceptance by importers (DA terms) to make payments abroad. “There is also a possibility that foreign exchange payments for such imports are remitted abroad without routing them through the banking system. Such payment arrangements pose a threat to the payment system and make difficult the assessment of foreign exchange outflows,” it said.

It brought in restrictions in the importation of items of non-essential consumer goods like spirits, garments, electrical appliances and household equipments. Commercial banks were told to obtain a margin deposit of 50 per cent of the invoice value before releasing documents pertaining to import of these items. Two weeks ago blackmarket dollars went up to Rs 107 when the dollar was trading at Rs105. Normally the rates are about the same. The Central Bank said excessive speculation was taking place in the foreign exchange market with certain market players transacting at levels, which are well beyond the normal import/export requirements.