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Rupee’s recovery drive on

Updated July 29, 2018

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KARACHI: The dollar has continued to lose against the local currency on a day-to-day basis, having dropped about Rs7 after elections.

The Forex Association of Pakistan reported on Saturday that the dollar traded in the open market at Rs123 buying and Rs126 selling. However, the exchange companies were buying at even less than Rs123.

Before July 25, the dollar was trading at Rs130-131, eventually falling to Rs123-126 – a loss of about Rs7 per dollar since elections. The currency dealers cited political stability emerging out of the recent elections for this fall of dollar. They said the uncertainty attached with the political crisis due to ouster of Nawaz Sharif from PM office and a huge current account deficit of $18 billion had pushed the local currency in the clutch of dollar.

However, the frequent depreciation of local currency by the former as well as the caretaker government eroded the confidence in rupee. This led to dollarisation of economy and greenback buying started across Pakistan. At one stage, the dollar was not available for buyers before the general elections, fuelling its price up to Rs134 and more in the open market. However, the representative organisations of exchange companies never accepted this rate and stuck to Rs130-131.

Fearing another drop in the price of the greenback, people rushed to sell their dollars which eventually pushed down its rate further, according to Exchange Companies Association of Pakistan’s General Secretary Zafar Paracha.

The exchange companies were charging up to Rs126 per dollar for buyers while giving less than Rs123 to sellers. This large spread has never been witnessed before. In the open market, about 90 per cent were sellers which shows the large availability of dollars.

The interbank rate, however, remained almost stable except for a slight reduction as a result of an official adjustment. The dollar was traded at Rs127.85 buying and Rs128 selling in the interbank market on July 27.

It shows that the open market is trading against the greenback at much lower rates than the interbank market.

“Either the government or the State Bank of Pakistan will readjust the rupee upward or the open market is exhibiting artificial dollar prices,” said a currency dealer in the open market. Usually the open market reflects the trend in the interbank dollar rates and is always remains ahead of the latter. However, currently, it is far behind the interbank market.

Some currency analysts believe the dollar may bounce back once the situation becomes normal after the formation of new government. The country has devalued the currency by almost a cumulative 20 per cent since December 2017 to boost exports. They believe the new government will have to approach the International Monetary Fund for the bailout package and the lender also believes that the rupee is overvalued. This devalued local currency would be acceptable to IMF, the dealers said.

Published in Dawn, July 29th, 2018