KARACHI: It is believed that the government has removed the cap on rupee-dollar exchange rate in the inter-bank market on exporters’ demand. They deemed it crucial to keep Pakistani products competitive in the global markets, banking sources told Dawn on Friday.

The local currency witnessed a sharp depreciation of 2.25 per cent against the US dollar in a single-day early this week. It attracted rush of investors and the market demand for the greenback rose sharply.

The sharp devaluation of Chinese yuan was the root cause of the wave of depreciation in the regional currencies including India and Bangladesh -- the three countries are main competitors of Pakistani exports particularly the textile products on the world markets.

While the number of letter of credits (LCs) opened by the importers witnessed a sharp increase during this week, the State Bank had to ask banks to stop forward booking. At the same time, the demand in dollar in open market rose to $8 to $10 million per day while it was about $4-$6m per day in June.

The dollar price seemed to settle at Rs104 in the inter-bank market, an increase of Rs2 within a week.

Bankers said that the dollar may not see any significant fall against the rupee since the countries in the region have adjusted values of their currencies after devaluation of the Chinese yuan.

The market experts believe the yuan would not see any appreciation due to a number of reasons including the slow economic growth of China.

They also said the steep of fall of equity markets across the globe and further cut in the oil prices made the US dollar best option for investment.

Moreover, gold is still not attractive for the investors while other international currencies like euro and British pound have been losing strength against the US dollar.

Banking sources said the State Bank has been trying to hold the dollar below Rs104 and it looks that dollar will not be allowed to gain more in the next couple of months.

They said China devalued its currency after a long time while it was due at least three years before. It is out of question that China will devalue its currency again in near future, they added.

Published in Dawn, August 29th, 2015

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