Rupee recovery changes market sentiment

Published June 30, 2022
The local currency has recovered Rs9 against the greenback in the open market since June 22.—Dawn
The local currency has recovered Rs9 against the greenback in the open market since June 22.—Dawn

KARACHI: The rupee continued to appreciate against the US dollar and recovered another Rs1.75 on Wednesday in the interbank market.

The dollar fell by Rs9 in the open market from its peak of Rs215 on June 22 to Rs206 on Wednesday.

Currency dealers in the interbank market said demand has reduced while supply has increased during the last 10 days. However, the sustainability of this appreciation is still uncertain. The dollar’s closing price in the interbank market was Rs205.12.

During the last seven sessions, the dollar depreciated by Rs6.81, which changed market sentiment while buyers and sellers also changed their approach.

“The market sentiment has changed with the inflow of $2.3 billion from China as the dollar lost Rs4.70 within a single session; this was the record recovery of the rupee in one day,” said Zafar Paracha, the secretary general of the Exchange Companies Asso­ciation of Pakistan (ECAP).

He said one of the main reasons for the very high demand for dollars was fake Letters of Credit (LCs). Importers, with the connivance of banks, opened four or more LCs and dollars were sent out without imports.

“Using just one LC while opening four LCs is enough to understand that money laundering has been committed,” said Mr Paracha.

Currency dealers in the banking market said the dollars were sufficiently available now to meet the demand. Since the trade deficit was reduced this month, the demand has declined.

Another reason for rupee appreciation was the selling of dollars by exporters who used to hold for as long as possible to benefit from rupee depreciation.

“The day the Chinese inflow landed in Pakistan, exporters sold $220 million, which immediately depreciated the dollar by a record Rs4.75,” the ECAP secretary general said.

He stated that during a recent meeting with Prime Minister Shahbaz Sharif and Finance Minister Miftah Ismail, he advised to tag imports with exports, which means that the import bill should equal the export bill.

Currency dealers in the interbank market said that despite no inflow from the International Monetary Fund (IMF), the market is now calm compared to more than ten months ago. During the current fiscal year, the dollar has already appreciated by 23.85 per cent.

Market experts said the government is also trying to approach Russia for cheaper crude oil, which may reduce the dollar demand. However, they were firm that if the IMF delayed the disbursement of $1bn, the exchange rate would reverse its behaviour in favour of the dollar.

“The foreign exchange reserve is not enough to support the rupee while the Chinese inflow of $2.3bn is a temporary support. There is a need to take measures to slash the trade deficit at the lowest level, like $5bn,” said a senior banker.

Published in Dawn, June 30th, 2022

Opinion

Editorial

Beyond the pale
Updated 09 Aug, 2022

Beyond the pale

When such ugliness is unleashed, everyone at some point suffers the fallout.
Burying Gaza
09 Aug, 2022

Burying Gaza

IT is a sad commentary on the politics of the Middle East that even its most tragic human stories get defaced and...
Celebrate the athlete
09 Aug, 2022

Celebrate the athlete

TALK about delivering on your promise: javelin thrower Arshad Nadeem did that in the grandest style at the...
An unseemly dispute
08 Aug, 2022

An unseemly dispute

THERE is clarity, but perhaps not of the kind that Chief Justice of Pakistan Umar Ata Bandial hoped to achieve when...
Unfair on taxpayers
Updated 08 Aug, 2022

Unfair on taxpayers

Unfair move has drawn valid criticism as it coincides with drastic increase in income tax on salaried people and corporates.
Polio nightmare
08 Aug, 2022

Polio nightmare

AS if the resurgence of polio in southern KP were not enough, officials and international monitoring bodies must now...