KARACHI: Days after the removal of an artificial upper cap on the rupee that sent the local currency into a nosedive, the dollar’s rate in the black market has come on a par with that in the open market, but uncertainty kept both the seller and buyers away on Friday.

The rupee closed at 262.6 per dollar in the interbank market, down 2.7 per cent, on Friday, after a 9.6pc slump on Thursday, which was its biggest single-day dip, according to the central bank.

However, the exchange companies issued the interbank rate of Rs265 for the same day, reflecting variations in the rates in different banks. In the open market, the rupee slid by Rs7 to reach 269, while the Kabul rate was quoted at 270 on Friday.

Some currency dealers said the late evening rate of the open market rate was Rs275, but trading was almost negligible.

The rupee has been dropping to adjust to a market-based exchange rate after an artificial upper cap on the local currency was lifted in line with IMF demands.

The removal of the cap has resulted in the two markets aligning more closely, and exchange companies expected a black market in dollars to eventually dry up.

The country is in dire economic straits servicing endless external debts and battling rising inflation. Besides, left with only $3.68 billion in foreign exchange reserves, Pakistan barely has enough to cover three weeks of imports and desperately needs the IMF to release the next $1bn tranche of its bailout programme to head off a potential default.

The IMF said in a statement late Thursday that a review team will arrive in the capital Islamabad on Tuesday in a bid to break the deadlock over releasing more financial aid.

“Stability in the exchange rate is the key to knowing the exact price of the rupee. Only stability could convince exporters and others with dollars to sell their holdings,” said Zafar Paracha, secretary general of the Exchange Companies Association of Pakistan.

He said once the dollar-rupee relation settles, the dollar holdings will flow towards the market. Bankers also said exporters did not sell their proceeds, which could relieve the cash-strapped country.

Bankers also believed that stability was a must to attract exporters and others to sell their dollars with the satisfaction that they were getting the highest price.

A senior banker in the currency market also endorsed that exporters didn’t sell their export proceeds.

However, Mr Paracha said the State Bank’s decision to provide cash dollars to exchange companies was not implemented. In Thursday’s meeting with exchange companies representatives, the State Bank’s deputy governor advised banks to provide cash dollars already in the accounts of the exchange companies.

“The trading on Friday was negligible. If cash dollars are provided as per the advice of the State Bank, the liquidity will impact the rates positively in the open market,” he said.

Meanwhile, the de-capping of the exchange rate is bound to produce another wave of inflation, already at 25pc, but the empty-handed government is ready to take all risks to get some dollars.

Published in Dawn, January 28th, 2023