KARACHI: Banks are experiencing a surplus of dollars, driven by exporters swiftly selling their earnings in anticipation of further depreciation of the US currency.

In the currency market, some banks are considered export banks due to their large network of exporters, who sell their proceeds to these banks. According to currency dealers, there’s been a remarkable increase in the inflow of export proceeds, exerting pressure on the exchange rate.

“The current situation could have driven the dollar to even lower rates, which would have been detrimental for exporters,” said Atif Ahmed, a currency dealer in the interbank market.

Over the past three months, the exchange rate has gradually strengthened the rupee against the dollar, which closed at Rs277.93 on Thursday. The dollar’s value has decreased by around Rs3 in the interbank market during this period.

SBP reserves increase for fourth week to reach $8.04bn

Moreover, the forward premium — a future currency exchange rate — has dropped by over 50 per cent for six months, reducing to Rs14 from a peak of Rs24 per dollar within the fiscal year.

Similarly, the forward-booking premium for three months has come down to Rs8 per dollar, showing waning confidence in the greenback. The government is now taking measures to prevent further dollar depreciation to support exporters.

Banking sector dealers have observed that importers, in anticipation of future costs, are securing dollars at these adjusted premiums for three, four and six months to manage their import needs.

The banks are following the State Bank’s policy to provide dollars to importers only when they have in their accounts. This policy has restricted imports, resulting in reduced trade as well as current account deficits. Importers are still facing restrictions on some essential and non-essential imports.

Though the SBP has expanded the list of imports of essential items, importers said the restrictions have significantly affected the economic growth. Pakistan depends on imports of raw materials on a large scale for its finished domestic and exportable products.

The low imports and high inflation reduced the consumption in the country, resulting in negative growth in the previous fiscal year and just 1pc growth rate in the second quarter of this year. The World Bank estimates the country’s economy to grow by only 1.8pc this fiscal year.

SBP reserves up $19m

The SBP reported on Thursday that the reserves have increased by $19m to $8.04 billion. The currency market believes that the improvement in the SBP’s reserves was due to the purchasing of dollars from the interbank market. This is a usual practice of the SBP.

The country’s total foreign exchange reserves have reached $13.38bn, including $5.34bn of the commercial banks during the week ended on March 29.

The central bank also hopes to receive about $1.2bn this month as the final tranche of the ongoing short-term loan agreement with the IMF.

The inflow will help the State Bank to bear the outflow of $1bn, which is due for the payment against the maturing of Eurobonds. The maturity of the bonds is expected by mid-April.

The banking market also expects higher inflows of remittances due to Ramazan that would help the State Bank to manage its foreign exchange reserves and the exchange rate.

Published in Dawn, April 5th, 2024