KARACHI: The US dollar on Tuesday hit an all-time high at Rs168.94 shattering the investors’ confidence in the local currency and exchange rate stability.
The rupee, which has been termed the worst performing currency in Asia, seems to have opened field for the bullish US dollar moving forward unchecked, to erode the remaining value of the local currency.
The rupee has been losing purchasing power fast in the domestic market too, causing inflation that has badly hit the general public.
The dollar closed at Rs168.94 as it gained 85 paisa (or 0.5 per cent) setting a new record. On August 26 last year, the dollar hit Rs168.43. Then it started declining and reached Rs151.83 on May 14 this year.
However, the greenback started rising and it has appreciated by 6.6pc and 9.9pc since June and May 14, 2021, respectively.
The high value of the dollar directly increases the cost of imported goods and indirectly causes high inflation. The country’s import reached $54 billion in FY21.
Bankers believe that the value of the dollar has slightly appreciated from the rate it was traded a year ago at Rs168.43. “There is space for further appreciation of the dollar in the coming weeks and months,” said S.S. Iqbal, a currency expert in the banking industry.
The State Bank of Pakistan had indicated earlier that the dollar could appreciate during the current financial year due to expected higher current account deficit. It believes that due to higher economic activities, the import bill would be higher which could increase the current account deficit in the range of 2 to 3pc of GDP. The SBP indication is one of the reasons for the fast appreciation of the dollar.
The impact of inter-bank dollar trading was witnessed in the open market as it traded Rs169.70, but the currency traders found more reasons for the sharp increase in dollar buying.
Currency traders said the open market witnessed a sharp jump in the dollar buying from Peshawar to Karachi after the change of government in Kabul. They said the dollar buying from the open market had increased mainly on two accounts.
There is shortage of dollars in Afghanistan, they said, adding that the people from that country were buying dollars from Pakistani market because they are allowed to carry $10,000 with them without permission.
Secondly, dual nationality holders are opening L/Cs to import goods for Afghanistan and they are buying dollars from open market to place it into banks for imports.
“Since the capture of Kabul by the Taliban, Pakistan’s imports have gone up sharply to $6.5bn in August,” said Chairman of the Exchange Companies Association of Pakistan Malik Bostan.
The US has seized $10bn of Afghanistan. The dollar is costlier by up to 60 paisa in Peshawar and Lahore than Karachi.
Another factor which has accelerated the pace of buying of dollars from the open market was the deadline for surrendering Rs40,000 bonds. The government has fixed September 30 as the last date to liquidate the bonds. The investors who are liquidating the bonds are buying US dollars from the open market which has increased the demand for the greenback.
However, the currency dealers said the Rs40,000 bonds were still stuck up with overseas Pakistanis who could not return to Pakistan because of coronavirus.
Published in Dawn, September 15th, 2021