Timely Action Missing
 

RECENT declines in the value of the rupee smack of speculative moves. A vicious circle always comes into being when the rupee begins to lose value against the dollar. The declines create more demand as people anticipate further declines in days to come. The heightened demand further drives the declines. It always takes timely action from the State Bank of Pakistan to break this circle by injecting fresh supply of dollars into the money markets to stabilise the currency. This vicious circle reared its head in the days leading up to the elections, and has returned once again to haunt the money markets. The recent declines are unusual because a very large spread has opened up between the rate in the open market versus that in the interbank market. This spread is larger today than it has been in decades.

Fundamentals do not justify the rapid pace of declines that the rupee is witnessing these days. No major change has come about in the country’s stock of foreign exchange reserves, and the interbank rates are not sliding as fast as those on the open market. Some amount of uncertainty has arisen regarding the preconditions demanded by the IMF, with rumours gaining ground that a devaluation of the currency is one of these preconditions. Sentiment and rumours are easy enough to stamp out, given appropriate attention. It’s heartening that the finance minister is engaged with the problem, working the phones with currency dealers and bankers. But officials of the SBP — the first line of defence against sentiment-driven currency moves — appear to be missing in action. A ship in stormy waters needs a captain more than anything else, and given the storm of sentiment sweeping the money markets, it should be all hands on deck. Much of what is happening in the currency markets can be rectified with concerted action, and the SBP needs to emerge from its slumber sooner rather than later



can any one please tell me about the decline of value of rupee??means what is the exact procedure behind? what are its implications? how can it be judged? please tell me as of I don't know exactly about market strategies or market ups and downs as well as economy..:)