An SBP official said the stable rupee-dollar exchange rate throughout the week indicated that speculation and volatility had vanished from the market. PHOTO: FILE
KARACHI: The State Bank of Pakistan (SBP) may intervene in the open currency market next week by releasing extra dollars to ease pressure on the rupee as demand for the greenback continues to surge in the wake of excessive buying.
The expectation stemmed from the central bank’s recent assurance to currency dealers that it would provide dollars if and when needed in the open market, where the rupee trades with a difference of around Rs2 compared to the inter-bank market.
“We will ask the central bank to release dollars on Monday or Tuesday,” Forex Association of Pakistan President Malik Bostan told The Express Tribune on Saturday. “This intervention may help bring down the dollar value against the rupee.”
The gap between the demand and supply of dollars has narrowed to virtually zero in the open market.
On an average, up to $15 million a day are bought in the open market and it sells back around 90-95% of them. “The supply is expected to remain stagnant, but demand may beat it next week,” Bostan said.
He pointed out that people were converting their savings into dollars as they strongly believed that the rupee would continue to weaken against the greenback and other major currencies.
In this backdrop, the central bank had asked currency dealers a few days ago to bring down the dollar exchange value by around Rs1 to Rs106.50 in the open market, but it did not really happen.
Bostan cited rising uncertainty in domestic politics and tense ties between Pakistan and the US as factors that were propelling the demand for dollars.
Apart from these, people are increasingly travelling abroad and for that they buy dollars from the open market. “A record 1.2 million people performed Umrah in last Ramazan (in June-July 2017),” he said.
The SBP held at least two meetings with currency dealers in the current month where it asked them to bring down the dollar value in the open market. It also gave them assurances that the central bank would step in if needed.
However, neither the dollar value came down from the pre-meetings level of Rs107.60, nor did dealers demand additional supply from the central bank until Saturday (October 28). The rupee-dollar exchange rate remained largely where it was before the first meeting in mid-October.
Another currency dealer was of the view that the exchange rate would remain at or around current level as it had already gone up by Rs0.70 to Rs107.60 in the first half of October.
The dollar moved in a range of Rs107.55 to 107.65 and closed at Rs107.60 on Saturday, according to forex.pk.
An SBP official emphasised that meetings with currency dealers had brought stability to the currency market in the current week. “This stability may be followed by weakening of the dollar in the days to come,” he remarked.
He said the central bank had not set a dollar price in the open market, but the meetings were meant to do away with volatility in the currency trade.
He insisted that the stable rupee-dollar exchange rate throughout the week indicated that speculation and volatility had vanished from the market. However, “we understand that the open market also runs on fundamentals and some of the economic indicators are not in favour.”
Currency dealer Haji Haroon believed that the dollar would not rise against the rupee in the open market until the inter-bank trade showed such movement. The dollar has remained pegged at Rs105.40 in the inter-bank market for a long time, according to the SBP.
Rupee likely to drop 3%
Arif Habib Limited, a research house, said in a report on Pakistan’s economy that it “expects the rupee to depreciate by 3% during fiscal year 2018.”
“The rupee has already depreciated by 4% from January to date in terms of REER (real effective exchange rate) as the US dollar has depreciated against other currencies,” it said.
Published in The Express Tribune, October 29th, 2017.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.
COMMENTS (2)
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ