KARACHI: The dollar remained above Rs107 in the open market for most of the week, despite warning earlier this month by the finance ministry and the State Bank to sell it at Rs106.20.

However, the inter-bank market witnessed more fluctuation where the rate sighted a dip of Rs1.50, to near Rs105.

Currency dealers said the dollar is under pressure because of higher demand from the travellers due to winter holidays.

“Thousands of Pakistanis are leaving abroad to celebrate holidays amid schools winter vacation,” said Anwar Jamal, a currency dealer in the open market.

In the first week of December, the dollar reached the same level which attracted severe criticism from the government and the regulators. A meeting was held in Lahore chaired by the finance minister and attended by the SBP’s governor along with representatives of the exchange companies.

During the meeting, the exchange companies were warned for the serious consequences if the rates were not brought down. They were asked to cut the dollar value by Rs2 to Rs105. The threat worked temporarily and the greenback dipped to around Rs106.

The State Bank has been supplying dollars to the open market to meet the demand but the rate is still going up in both the open and inter-bank markets.

The inter-bank market recently witnessed a sharp cut of Rs1.50 and the dollar was traded as low as Rs103.50, which shocked the exporters already demanding further devaluation of the rupee. But the new rate was short-lived and the dollar was traded as high as R104.95 during the week and closed at Rs104.82 on Friday.

It is surprising for many that the exchange rate is still vulnerable despite supply of dollars from the State Bank and near-$21bn foreign exchange reserves.

Analysts said the biggest reason is the dollar itself which appeared as the single trusted global currency and is the biggest target of trillions of liquidity.

Almost all international currencies depreciated against the US dollar since the beginning of the current fiscal year, including the euro, the pound and the yuan. A recent fall in the Chinese currency badly hit the emerging markets and their currencies were significantly depreciated against the greenback.

In case of Pakistan, some economists suggest that the rupee is overvalued by as high as 20 per cent. Exporters have the same argument as they ask the government to devalue the local currency that would help make exports cheaper. Pakistan’s exports have been declining faster this fiscal year compared to the preceding one.

Analysts and independent economists fear that the increasing debt servicing on foreign debts would put more pressure on the rupee. Repayment to the IMF and Paris Consortium loans would push the debt servicing as high as $10bn in the next two to three years.

Currency analysts said the massive borrowing from foreign sources would not allow the exchange rate to stabilise and the local currency will continue to fall in the coming months and years.

Published in Dawn, December 20th, 2015