Interbank and kerb market rates vary by Rs 1.40, with rates lower in interbank currency exchange, triggering fears this may be a prelude to depreciation of rupee in interbank exchange also;
The greenback continued its upward trend against local currency in the open market on Monday closing at Rs 106.80 with market experts saying its upward move would continue as per expectations of the International Monetary Fund (IMF) and the federal government.
The US dollar closed at Rs 106.80 for buying and Rs 107.10 for selling in the open currency market, up by 30 paisas compared to the closing of Rs 106.50 on Friday evening.
A central bank official said that there was no new factor in the upward movement of the greenback except some demand forces. According to him the market forces are pulling it up against the rupee.
However, a banker of a government bank said, “The dollar is appreciating in the open market as per the directive of the federal government and IMF and the desire of both of them is to appreciate greenback against local currency.” He said that it was the demand of all their exporters too.
He said that in last July there was a difference of Rs 2 between Interbank and kerb market, but suddenly the central bank increased the dollar rate by Rs 2 in a day on the directive of the central government.
“There was no written directive to central bank, but it depreciated the local currency against the greenback in last July and till now the dollar has gained Rs 6.80 against the rupee in open market and Rs 4.50 in the interbank market,” the banker added.
The gap between the two markets has widened again to Rs 1.40, which the currency experts describe as alarming as it indicates that room is being created to push the price of dollar in the inter-bank market again.
“The demand from the importers is normal in the banks,” said a banker of Treasury department in NBP bank. “The supply is coming as routine but there is no shortage of dollar in the interbank market; that’s why the dollar is stable in the Interbank,” he added.
Despite approval from the central bank to import dollars from Dubai and other neighbouring countries, the supply is short in open currency market, a dealer at open currency market claimed.
Nowadays, the demand of the dollar is coming on from the people going for Umrah, they claimed.
The central bank had given permission to all exchange companies to import dollar from abroad to overcome the shortfall, but the exchange companies in Pakistan have so far failed to overcome the demand or they are working on the SBP agenda, market experts said.
In this connection, sources in FIA and exchange companies said the exchange companies are importing $5 million to $7 million daily from abroad on the directive of the SBP.
“The dollar will go up another 5 to 10 per cent in the coming weeks as the IMF has asked the government to de-value the local currency against the dollar,” an analyst of a brokerage house said and added that our Finance Minister Ishaq Dar has to satisfy the IMF officials before the last week of December, otherwise, Pakistan will not get the 9th tranche of the IMF. According to the analyst, the government has been asked to depreciate the rupee, levy extra tax to collect Rs 40 million revenue shortfall and present privatization plan of the government entities.
Recently, the central bank has shown its concern with the recent falls of the rupee putting the blame on articles appearing in newspapers for this slide. If the situation in the money markets is so fragile that a few articles in the press can trigger negative sentiment, then clearly the fundamentals are not as sound as the central bank would like us to believe, the analyst said.
Movements of this sort in the exchange rate are rarely caused by retail consumers of foreign exchange. This kind of upward trends almost come as a result of bulk suppliers, such as exchange companies, banks and traders.
It is entirely wrong that the surge in the dollar’s value on the open market is the result of speculative activities and not connected to any sudden change in the underlying fundamentals, the analyst said.
The central bank ought to be looking for the reason behind the surge of dollar. Such sharp swings are not new to the country’s money markets, and may result from serious weaknesses in the structure of the market.