KARACHI: With continuing uptrend in the rupee’s value and a positive outlook, the open market saw fresh inflows of US dollars, which further widened the spread between buying and selling rates of the greenback by up to Rs16.
On Tuesday, open market dealers were buying the dollar in the range of Rs108-122 and selling it in the Rs122-124 bracket.
“Dealers are in panic over the rupee’s positive outlook,” said a Karachi-based dealer. Meanwhile, the State Bank of Pakistan (SBP) reported that the rupee further strengthened by 0.68% (or Rs0.86) to Rs124.18 against the US dollar in the inter-bank market.
Rupee appreciates against US dollar in open- and inter-bank markets
Cumulatively, it has recovered 3.36% in the past seven days from Rs128.5 on Monday last week. Prior to that, it had lost 22% of its value since December 2017.
Another open market dealer said many dealers had sold their dollar holdings in the inter-bank market in the absence of buyers at exchange companies.
However, majority of the currency dealers may have sold dollars at higher rates despite a significant drop in demand for the greenback. People who were in urgent need of dollars went to the open market and gave the dealers their demanded price.
On the other hand, currency investors continued to exit the market on expectations of further appreciation of the rupee.
Currency ends with 2.2% gain, closes at Rs125.04 against US dollar
A dealer at Habib Qatar International Exchange said, “We have adequate supply of dollars as we have continued to purchase them over the last three to four days.”
“We are still selling dollars at a lower price than the inter-bank market, which is an unusual situation,” he added.
BMA Capital economist Fawad Khan said investor sentiment had turned positive with China lending another $2 billion, followed by activation of a credit line of $4.5 billion for oil imports by the Islamic Development Bank (IDB) and expectations of further fund flows from friendly countries, including Saudi Arabia, and project financing from multilateral lenders.
However, the current uptrend in the rupee’s value is likely to be short-lived as Pakistan is seen launching a formal request for an International Monetary Fund (IMF) bailout in the near future. The country is in dire need of building foreign currency reserves, which have dropped to a critically low level of $9.01 billion.
“I think it (the rupee uptrend) is only temporary,” Khan said. “I believe it should be reversed...to encourage exports and discourage imports.”
Price of gold falls post-rupee appreciation
He emphasised that the SBP should refrain from creating volatility in the market as two weeks ago, it had let the rupee depreciate, whereas now, the currency was on the rise. In order to take benefit of the current situation, “the central bank should spring into action and buy dollars from the open market to build reserves,” he added.
Published in The Express Tribune, August 1st, 2018.
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