Rupee falls to 316/dollar in open market, exchange rate gap widens

KARACHI: The rupee saw a further drop in the open market on Tuesday as a result of rising dollar demand and dwindling supply, dealers said. The dealers reported that the rupee’s open market rate was between 313 and 316 per dollar. The US currency was being sold by certain money changers at 318 rupees. But, according to the Exchange Companies Association (ECAP), the rupee was trading at 312 against the dollar on Tuesday versus 311 on Monday.

The local unit closed at 285.35 to the dollar in the interbank market, up marginally from the previous close of 285.42. Any significant difference between the official and kerb markets’ rates encourages transactions outside the formal banking system. The disparity in currency rates between the interbank and open markets increased to 26.65 rupees as per the ECAP closing rate. The growing difference between the two rates is pressuring the central bank to devalue the currency in addition to enticing Pakistani expatriates to send money home through shady means i.e., hawala.

The rupee is still under pressure, according to Zafar Paracha, general secretary of the ECAP, as the supply of cash dollars continues to outpace demand. “Banks no longer provide cash dollars to account holders and exchange companies, leaving them in short supply. Currency owners are unable to sell in the market due to the economic and political unrest,” Paracha said.

Due to the needs of vacationing holidaymakers and Haj pilgrims, there was a large demand for dollars on the open market, he added. “Since some imports are financed through open markets, businesses also have a strong desire for dollars.”

Paracha noted that open market rates were rising as a result of dollar purchases made for the Hajj, but the increase in hawala rates is the consequence of payments made by importers who have opened contracts under the SBP 365-day deferred repayment scheme.

There is a significant demand for dollars in the open market because of the needs of travellers during the summer vacation, Haj pilgrims. There is also an appetite for dollars demand from businesses since some imports are funded through open markets.

In a statement, the chief of the IMF mission for Pakistan says the IMF is still in touch with Pakistan's government in order to clear the way for a board meeting before a financing programme expires at the end of June.

The focus of the engagement revolves around three key agendas. Firstly, there is a concern regarding the foreign exchange market functioning. “The IMF has apparently expressed dissatisfaction with the administrative measures taken to manage the exchange rate, particularly through import restrictions,” said Chase Securities in a note.

“However, due to limited foreign exchange reserves and the absence of an IMF programme, the measures have been perceived as the only viable option. Secondly, the IMF emphasises the importance of passing the FY24 budget in alignment with the goals set forth in the programme,” it stated.