KARACHI: Aggressive dollar buying by the State Bank from the inter-bank market has put the exchange rate under its influence, keeping the greenback around Rs102, market sources said on Thursday.

The difference between dollar rates in the two markets has risen to Rs1.80 which reflects the currency’s suppressed value in the inter-bank market.

For more than a month, the central bank has remained a major player in the currency market by not allowing banks, especially large ones, to participate in major deals, said a currency dealer in the inter-bank market.

“The SBP has been increasing its foreign exchange reserves through dollar-buying from the inter-bank market,” he said.

Experts said the government does not want to lose the credit it gained from 10 per cent appreciation of the rupee against the US dollar last year. However, the dollar slowly overpowered the local currency, crossing Rs102 in the inter-bank and reaching close to Rs104 in the open market.

The open market normally offers higher rates, but the difference between the two markets has now become too wide and so obvious that it indicates pressure on the inter-bank market.

“It seems the shortage is because of State Bank’s dollar buying which escalated both demand and price,” said the currency dealer, adding that if the market is left free the dollar could easily jump to Rs102.50 to 103.

The SBP on Thursday said that during the week ending May 22, 2015, its foreign exchange reserves decreased by $228 million, to $12.28 billion. The SBP had to pay $136m to the International Monetary Fund as the last instalment under Stand-By Agreement (SBA).

Despite large payments being made as debt servicing, the State Bank succeeded to maintain reasonably high reserves with the help of buying dollars from inter-bank market. In FY14, the country paid $6.9bn as debt servicing (principals plus interest). This year, the country paid $3.557bn as debt servicing by the end of third quarter.

Demand in the open market has increased manifold, said Anwar Jamal, a currency dealer in the open market, adding that Umrah and tourists are the two main reasons for soaring demand.

Meanwhile, the general secretary of Exchange Companies Association of Pakistan, Zafar Paracha, has asked the people not to buy dollars unnecessarily. “Speculators have increased the dollar rates which will fall in few days. Thus the buyers will lose money.”

Jamal said fresh dollar inflows in Ramazan would bring the currency’s value down against the rupee.

Published in Dawn, May 29th, 2015

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