KARACHI: The US dollar on Friday reached a record high against the rupee at Rs168.50 before falling lower than Thursday’s price to finally close at Rs165.54 in the interbank market.

This represented a slight gain of 59 paisas in the local currency, compared to the opening value of Rs166.13.

Over the shortened week, the exchange rate has seen significant movement with the dollar jumping by Rs6.53 from Rs159.01 on Tuesday, which represents an increase of 4.1pc.

Bankers said that the dollar was traded as high as Rs168.50 during the session on Friday but intervention from the State Bank of Pakistan forced the rupee to make some gains.

One said the inflow of export proceeds increased which helped the local currency get back to its closing rate of Rs165.54.

Earlier, State Bank Governor Reza Baqir had assured that the exchange rate would be market-based but not a free floating one. Until a couple of weeks back, the exchange rate was presented as one of the key metrics in favour of economic stabilisation during the fiscal year, but it could not be maintained due to the negative impact of the coronavirus on the economy.

The fast withdrawal of dollars from the banking system by foreigners was one of the key elements which created a sudden demand for the greenback.

While the foreigners had been liquidating their positions in the market treasury bills since the end of February due to the panic caused by the coronavirus, the recent interest rate by a cumulative 2.75 percentage points across two monetary policy committee meetings is expected to further accelerate their outflow.

Hot money outflows, which have crossed the $1.5 billion mark during the ongoing month, stood at $21.5 million on March 26 (reported with a day’s lag), compared to the previous amount of $71m.

At its peak, foreigners had invested about $3.4bn during this fiscal year in Pakistan’s government papers (mostly treasury bills), but rushed to liquidate their holdings, which jolted the local currency market.

On the other hand, the open market saw the dollar surging by Rs5 to Rs165 on Friday, according to rates provided by the Exchange Companies Association of Pakistan. However, operations of the currency dealers were severely restricted amid the ongoing lockdown.

Published in Dawn, March 28th, 2020