KARACHI: The US dollar on Wednesday lost almost Rs1 against the rupee as exporters fearing further weakening started selling their greenback holdings in the interbank market.

The dollar fell 98 paisa to close at Rs155.74. The steep fall created panic among the exporters, who keep their proceeds for up to 90 days.

“The free float of the exchange rate is now in favour of local currency since the improvement in the country’s external account. However, the main reason behind the fall is the selling of dollars by the exporters, which has further curtailed the demand for the greenback in the interbank market,” said Atif Ahmed, a currency dealer in the interbank market.

He said the dollar further declined in the second half of the session and was traded for Rs155.50 for next day (tomorrow value).

Steep fall triggers panic selling by exporters

“In fact the dollar lost Rs1.22 against the rupee on Wednesday. The market on Thursday may open even lower as it opened today at Rs156.40 instead of closing rate of Rs156.72 on Tuesday,” he said.

Exporters have already started whining about the depreciation of the US dollar as they get lower payment in terms of the rupee when they bring back their export proceeds into the country.

However, bankers said the situation would remain in favour of the rupee as inflow of exports proceeds will increase in the last quarter of this fiscal year.

“Currency experts know that exports have increased significantly and the export proceeds would be higher in the next few months which means dollar reserves would rise,” said a senior banker. He said the currency market behaviour speaks about inflows in the coming months.

On the other hand, barring for imports, the demand for dollars has touched the lowest level. Public consumption for travelling, Umrah, education expenses, healthcare, etc has gone down to the lowest level due to the ongoing pandemic.

Bankers said there is no chance of higher consumption in the coming months or during the current fiscal.

“The dollar depreciated 7.5pc against the rupee since the start of FY21, which helped the country to pay less cost for imports,” said the banker.

REER falls

A monthly report of the State Bank showed that the Real Effective Exchange Rate (REER) in January was Rs95.317, slightly lower than 96.326 in Dec 2020.

The REER is the weighted average of a country’s currency in relation to an index or basket of other major currencies. The weights are determined by comparing the relative trade balance of a country’s currency against each country within the index. This exchange rate is used to determine an individual country’s currency value relative to the other major currencies in the index.

The REER is used to evaluate how a currency is fluctuating against many others at once, and is also used in international trade assessments.

Published in Dawn, March 18th, 2021