KARACHI: In an interesting and surprising development, the currency has appreciated on Friday to Rs127.86 against the US dollar in the inter-bank market, according to the State Bank of Pakistan (SBP).
It has recovered around 0.5% in the last three days, strengthening from Rs128.50 to the greenback on Monday.
The development comes after the rupee shed around 22% since December 2017 as the country’s current account deficit widened to a historic high, taking down gross foreign currency reserves to the alarming level of $9.01 billion.
However, on Friday, the rupee appreciated, inviting panic selling and nominal buying in the open market as well. The currency recovered 1.5% to hover around the Rs127-mark to the US dollar, currency dealers said.
“There are strong rumours that the inter-bank market would further strengthen rupee by (another) Rs1.5 to Rs2 on Monday,” a dealer at Habib Qatar International Exchange Pakistan told The Express Tribune.
“Dollar (trade) closed at Rs127 against Rs129 (on Thursday),” he added.
The downward movement in rupee comes in contrast to widespread talks that the rupee could weaken further even after losing 22%.
“There was an absence of buyers (of dollars) in the (open) market … however, the drop is expected to be short-lived,” a currency dealer at the Dollareast Exchange Company told The Express Tribune.
Pakistan Forex Association President Malik Bostan said the drop should be seen in the backdrop of SBP’s move to halt the inter-city physical movement of dollars.
The SBP notification, issued several days ago, binds dealers to transfer dollars only through proper banking channels with effect from Tuesday (July 24). It also says that if it finds physical movement of the foreign currency it would seize it, Bostan added.
Many dealers move dollars via air and/or roads traveling from head offices to branch offices nationwide or vice-versa.
“The ruling has broken the backbone of illegal dollar traders,” Bostan said, elaborating this has massively increased supply of dollars to the legal dealers and helped them appreciate the rupee.
Exchange Companies Association of Pakistan (ECAP) General Secretary Zafar Paracha said the rupee has recovered in the open market after currency smuggling came to a complete halt in the last few days.
He said the caretaker government adopted a stricter stance in the movement of people on borders with Afghanistan and Iran to avoid any untoward law and order situation during the general elections held on Wednesday (July 25). Only those people with complete travelling documents were allowed to pass through the borders.
Interestingly, The Express Tribune has also reported that China has agreed to immediately give a $2-billion loan to Pakistan, aimed at stabilising fast-depleting official foreign currency reserves and providing much-needed breathing space to the new government. The cushion eases the pressure on the Pakistani currency that suffered due to a widening current account deficit that reached a peak of $17.99 billion during fiscal year 2018.
Published in The Express Tribune, July 28th, 2018.