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