KARACHI: The rupee strengthened against the US dollar, gaining Rs1.30 in the interbank market and Rs1.50 in the open market, following a renewed crackdown on currency smuggling.

Bankers and currency dealers attributed the improvement largely to administrative measures rather than market fundamentals. The dollar fell in the interbank market from Rs284.80 to Rs283.50, while in the open market, it declined to Rs286.50. The crackdown was launched on July 23 in response to reports that US dollars were being smuggled to Afghanistan and Iran.

“The crackdown has produced positive results, and more depreciation of the dollar is expected next week,” said Malik Bostan, President of the Forex Association of Pakistan.

The State Bank of Pakistan (SBP) has called a meeting of bank representatives on Monday, although the agenda has not been made public. Some banking sources believe the central bank may instruct banks to bring down the dollar rate further, while others expect discussions on issues faced by importers.

Dollar slides Rs1.50 as smuggling clampdown revives rupee

Bankers said that Letters of Credit (LCs) for imports are often opened only when the vessels arrive in Pakistan, rather than at the time of booking. This practice avoids interest payments but leads to sudden spikes in demand for dollars, complicating the SBP’s efforts to maintain exchange rate stability.

“This is a problem, but I believe the dollar rate will also be discussed in the meeting,” said a currency expert.

Exporters have been actively selling dollars in the forward market, particularly ahead of Monday’s meeting. If the exchange rate remains above Rs282, exporters are expected to continue short-term forward bookings. Analysts expect the dollar to stabilise around Rs282 next week, providing temporary relief in dollar liquidity.

However, experts remain sceptical about the long-term sustainability of administrative measures. “The reliance on crackdowns as a strategy hasn’t changed much over the years,” said Faisal Mamsa, CEO of Tresmark, a global currency tracker. “In an overly regulated market, speculative forces and black markets will always develop.”

He added, “Since we have never made a Plan A — which would involve structural reforms — the fallback to Plan B, based on intimidation and rate fixing, only succeeds temporarily.”

The SBP is expected to continue purchasing dollars to build its foreign exchange reserves. In FY25 so far, the central bank has bought around $9bn from the market to shore up reserves.

Published in Dawn, July 27th, 2025