KARACHI: The US dollar is being booked without premium at least for one month in the interbank market reflecting an exchange rate stability amid fears that high inflows of export proceeds and remittances could further depreciate the greenback.

“We have made deals. The buyers are booking dollars for one month without premium, which was unbelievable just 20 days back,” said Atif Ahmed, a currency dealer in the interbank market.

He said the premium on six-month dollar buying has gone down by 50 per cent showing the declining confidence on the dollar against PKR.

When the forward currency exchange rate happens to be higher than the spot rate, then the currency is said to be at a premium. Conversely, discounts occur when the spot rates are higher than the forward exchange rates. Hence, a negative premium is equal to a discount.

Rupee strengthens further to 289.80 in interbank

The actual change in the exchange rate started emerging after the launch of a crackdown against the illegal business of foreign currency. It paid dividends as the grey market disappeared immediately while the dollar smuggling to Afghanistan and Iran was brought under control. This has impacted the dollar rate in the interbank market compelling the exporters to sell their holdings providing substantial liquidity in the banking market allowing the local currency to recover against the US dollar.

Currency dealers were not sure how long the rupee could maintain its bull run but were worried that due to weak economic fundamentals, a trend reversal could change the entire scenario as it happened several times in the past.

“We need to improve the foreign exchange reserves, the only way to keep the exchange rate stable,” said a senior banker. He was sure that the higher inflows of remittances in September with a larger supply of export proceeds could strengthen the exchange rate. Bankers and currency dealers believe that inflows in September would be higher due to the blockage of informal channels for remitters.

Exchange rate

The State Bank of Pakistan reported the dollar closing price at Rs289.8, showing a decline of Rs1.06 compared to Rs290.86 a day before. Since the crackdown launched on Sept 5, the dollar has depreciated by over Rs17 in the banking market.

However, a bigger deprecation of Rs42 was noted in the open market. The Exchange Companies Association of Pakistan (ECAP) reported the dollar closing rate at Rs291 on Tuesday compared to Rs293 a day before, a decline of Rs2.

Currency dealers said the trading is thin despite higher liquidity in the open market.

Roshan digital account

The SBP reported a total inflow of $6.6bn through the Roshan digital account so far. The inflows through RDA were $6.62bn by the end of Aug 31. Out of this total $1.45bn has been repatriated while $4bn was utilised locally.

Published in Dawn, September 27th, 2023