Spread shrinks as rupee recovers

The gap between rupee-dollar exchange rates in inter-bank and open markets narrowed to Rs7 on Wednesday as the domestic currency gained ground in both markets.

The rupee recovered 0.28%, or Rs0.77, to Rs287.18 against the US dollar in the inter-bank market, indicating that the gap between demand and supply of the greenback had shrunk.

In the open market, the currency regained 1.36%, or Rs4, to Rs294 to a dollar. In the past two days, the rupee has cumulatively recovered 3.74%, or Rs11, thanks to the US dollar supply by commercial banks to currency dealers in the retail market.

The spread between the two currency exchange markets had hit a record high of Rs27 a couple of weeks ago compared to the range of just Rs1-3 in the past.

The shrinking spread was in line with the International Monetary Fund’s (IMF) recommendation, though chances of revival of its $6.7 billion loan programme are slim.

The programme will expire in around two weeks on June 30 while the two sides have yet to bridge their differences.

The rupee’s recovery in the inter-bank market may be attributed to the downtrend in the international oil market, as Pakistan heavily banks on imported energy to meet consumer demand.

Apart from that, Pakistan has imported the first-ever Russian crude cargo at a “discounted price” and has paid for the oil in Chinese currency, signalling the demand for US dollars has gone down.

More crude is planned to be imported from Russia, though it produces a higher amount of furnace oil, which is no more needed by power plants.

Published in The Express Tribune, June 15^th, 2023.

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