KARACHI: The US dollar continued to rise despite ample supply and traded as high as Rs107.70 in the open market on Tuesday, bringing into question the strategy adopted by the State Bank of Pakistan (SBP) and exchange companies to keep the greenback at Rs106.20.

Currency experts believe that panic in the bourse has started to affect the currency market, and a rush for dollar buying has pushed up its value creating a wide gap between the inter-bank and open market rates.

The State Bank has been supplying dollars at Rs105.90 and exchange companies promised to sell it at Rs106.20. But the agreement on price was soon broken, allowing the greenback to set its own destination.

Currency dealers said the US currency is gaining strength due to increasing demand, but they failed to explain why the demand has suddenly gone up.

An expert on currency movement said the stock market crisis and investigation over terrorist financing have fuelled demand.

“This is the premium for heightened uncertainty on multiple fronts,” Eman Khan of Tresmark said, adding: “This panic could flow over to the interbank market especially as equity dollars will flow out.”

The inter-bank did not show any sign of panic but the currency dealers said the pressure is mounting to break the barrier of Rs105.50 per dollar. The outflow of dollars through equity market has picked up pace in the last 15 days.

According to a research report, $206 million has flown out from the equity market since the beginning of this fiscal year.

“If the inter-bank market is left free, the dollar will surely go up,” said currency dealer Atif Ahmed.

Though the State Bank succeeded to keep the exchange rate stable in the inter-bank market, it failed to bring the free-market forces under control.

The investigation against the terrorists financing has also taken a definite shape in Pakistan for a few months. However, after the arrest of Karachi-born currency dealer Altaf Khanani in the United States, the probe has been intensified.

“Earlier dollars were available for those not willing to be identified, but now these companies have stopped supply to them. So they are now purchasing it legally pushing up its demand,” said a currency dealer.

“Most exchange companies do business with Dubai. But the arrest of Khanani and closure of his Al Zarooni Exchange in Dubai have created fear among exchange companies that investigation could be widened to Pakistan.”

Published in Dawn, December 2nd, 2015