KARACHI: Moments after the market opened, the dollar was finding buyers at rates as high as Rs167.30 in the interbank on Friday, a day of abbreviated trading hours. But when the curtain dropped at noon, the rupee had risen to Rs163.58, one of the sharpest climbs seen in recent times.

During the day, the dollar hit an intraday low of Rs163.25 and stood Rs3.3 or 1.98 per cent lower at close compared to its opening value of Rs167.8.

The move left many bankers and traders puzzled since it came one day after the State Bank of Pakistan announced a cut of two percentage points in the key policy rate. The rupee is more likely to lose value against the dollar when interest rates are cut, as per normal market moves and many were left wondering how and why this time the convention was defied.

“The market opened normally, but soon the supplies started to come in,” says one interbank market trader. At least four banks were seen selling dollars at any rate to any buyer in early trade, according to multiple traders that Dawn spoke with, and all of them said they had strong suspicions that the SBP was the supplier of this liquidity.

“By my count, the SBP injected close to $100 million around 11:30 in the morning into the market by working through these banks,” one senior banker says on condition of strict anonymity due to the sensitivity of the issue. Another agreed that what they saw was an intervention, but estimates net injection closer to $80m instead.

Rises by Rs3.3 one day after cut in interest rates

When asked for comment, the SBP said it is “committed to a market-based exchange rate and intervenes only to address disorderly market conditions. The two-way market volatility in Pakistan that we have seen recently is externally driven and the strengthening in the fundamentals of Pakistan’s economy that drove the improvement in Pakistan markets before the outbreak of coronavirus remains intact.”

Closer to the end of trade, they say, another large supply suddenly materialised, somewhere between $50 and $100m. “Closing time is thin anyway, Friday people are squaring their books, there is rarely any residual demand left,” says a trader who watched incredulously. “When this large supply landed at the end, the bottom fell out of the market,” he adds.

There were no large payments to be made today, no major outflows, treasury players at big banks say. Trading was going to be thin as it is. In times like these, even small amounts, in the tens of millions of dollars, coming in or going out can shake the market. As it turned out, two large spurts of supply of dollar liquidity to the market sent the exchange rate rolling uphill.

Published in Dawn, April 18th, 2020