KARACHI: Higher exchange rates attracted extensive dollar selling especially from exporters which enabled the rupee to recover Rs9.24 against the greenback during the last 11 days.

The US currency peaked at an all-time high at Rs276.58 on Feb 3 against the rupee mainly due to extreme volatility in exchange rates stemming from the government’s attempt to manage the exchange parity artificially low which created a grey market providing speculators much space for manipulation and profiteering.

However, the decapping of rates in the last week of January not only eased the exchange rate uncertainty but also improved dollar availability substantially both in interbank and open markets which strengthened the local currency.

The rupee recovered 3.34pc or Rs9.24 after hitting a record low at Rs276.58. The State Bank on Tuesday reported that the dollar depreciated by Rs2.10 to close at Rs267.34 from Rs269.44.

“The fall in dollar rates is due to higher inflows despite no encouraging reports from the International Monetary Fund,” said Atif Ahmed, an interbank currency dealer.

Though the 10-day talks with the Fund remained inconclusive, the currency market players hope a deal IMF would reach shortly paving the way for the release of a $1.2bn tranche besides unlocking inflows from other multilateral lenders and friendly countries.

While most experts and analysts believe that the country has not fully averted a default risk, the exchange rate looks to have settled around Rs270. Since decapping, the dollar-rupee exchange rate hovers around this level with some fluctuations.

Bankers said the exporters find the exchange rate ideal to sell their dollar holdings but the importers are facing a double problem — the higher cost of imports and restriction on opening letters of credit.

On Feb 1 the rupee bounced back after two months of decline, recovering 0.65pc in the interbank market to close at 267.89 against the dollar. This was the first resistance the local currency put up which pull down the open market rates too.

After having touched a peak of Rs283 in the kerb market in recent days, the dollar traded at Rs268 and Rs271, buying and selling, on Tuesday. What is more encouraging for Pakistan was the collapse of the grey (black) market as the rates available in banks and open markets were higher than in the grey market. It also helped to get control over dollars smuggling from Pakistan to Afghanistan.

Published in Dawn, February 15th, 2023