KARACHI: For the first time in Ramazan, the dollar has appreciated against the rupee due to low inflows, sharp decline in the reserves of the State Bank of Pakistan (SBP) and fears over further devaluation of the local currency, currency dealers said.

The foreign exchange reserves of the SBP further slipped to $10 billion, which could eventually fall to single digit given the downward trajectory. During the week ended on May 25, reserves held by the SBP declined by $286 million.

Depleting reserves coupled with low inflows into the country, particularly from the overseas Pakistanis, heightened both demand and prices in the open market.

The dollar was traded as high as Rs119.50 in the open market, heading to set a new record while the price difference with the interbank market also hit its peak.

“I have never seen dollar appreciating in Ramazan. This is the first time greenback is gaining against the rupee,” said Exchange Companies Associa­tion of Pakistan Secretary General Zafar Paracha.

He said the inflows from overseas Pakistani have drastically dropped while people are not selling their holdings in the market mainly due to the fear that rupee will depreciate again. The local currency has been devalued twice during this fiscal year.

Each year the inflows of foreign currencies increase after the first days 10 days of Ramazan while proceeds from charity (Zakat) donations also reflect their presence in the open market.

The rate gap between the two markets has reached to about Rs4 per dollar as the price in the interbank ranged between Rs115.60-115.70 on Thursday.

This wide difference is highly attractive for illegal transactions. The overseas Pakistanis can get thousands of excess rupees on their transactions while the Hundi and Hawala offer an additional Re1 more on each dollar transaction.

“This price difference could hurt remittances through legal banking channel,” said Paracha.

Published in Dawn, June 1st, 2018