KARACHI: Exporters held back proceeds while goods’ transporters went on strike for 10 days, said banking sources on Thursday.
The exporters have demanded for a long time that the rupee should be devalued so they can earn more in terms of the local currency.
However, the government has kept the exchange rate unchanged for more than a year.
“The exporters always like to hold back export proceeds in the hope of getting a better exchange rate,” said Atif Ahmed, a currency dealer in the interbank market. He said export proceeds during the 10-day strike fell sharply.
He said the government remained unconvinced that the local currency’s depreciation could boost exports despite a continuous fall in exports. Instead, the government announced a number of incentives for the export sector, including the establishment of a fund of Rs100 billion.
In spite of pressure, the State Bank of Pakistan (SBP) kept the exchange rate at Rs104.85 in the interbank market and did not let it cross the redline set more than a year ago.
However, the open market rate witnessed sharp variations during the year and settled around Rs106.
“The market is stable, but the impact of the strike can be devastating. Exports have been declining with a significant fall in foreign exchange reserves,” said Malik Bostan, president of the Forex Association of Pakistan.
He said the strike will hit the exchange rate regime while the situation in the external sector is unsatisfactory.
Currency experts said the huge trade deficit and low remittances have been sending a red signal to the currency market as the government refuses to take the trend seriously.
“How long will the SBP be able to keep the exchange rate unchanged in the interbank market while the net dollar inflows decline amid rising trade deficit and debt servicing?” said Mr Ahmed.
He said the artificially maintained exchange rate in the interbank market can see a big change if it is not allowed to move in accordance with demand and supply.
Published in Dawn, May 19th, 2017