Rupee edges up against dollar in interbank market

KARACHI: The rupee gained slightly against the U.S. dollar in the interbank market on Monday, as balanced supply and demand for the greenback kept the exchange rate stable.

The rupee closed at 279.85 per dollar, up from 279.90 on Friday, according to the State Bank of Pakistan (SBP). In the open market, the rupee was unchanged at 281.07 per dollar for the second straight session, dealers said.

They said the rupee was supported by adequate inflows of remittances and export proceeds, which met the demand from importers and businesses. "The recent crisis between Iran and Pakistan halted the gradual and steady forward sales of dollars by exporters, but as the tension between the two countries eased, exporters resumed selling dollars in the market," a foreign exchange dealer said.

The dealer said the rupee was expected to trade in the range of 279-280 per dollar in the coming days, barring any unforeseen developments. The International Monetary Fund (IMF), in its report released last week, said maintaining a market-determined exchange rate was crucial to absorb external shocks, rebuild reserves, and support economic recovery.

The interbank exchange rate came under pressure in early September, after some flexibility following the approval of the stand-by arrangement,which the authorities blamed on speculation and smuggling of foreign exchange and goods over the Afghan border. In response, the authorities tightened border controls and the SBP announced measures to strengthen capital and governance requirements for exchange companies (ECs), the report said.

The rupee strengthened gradually through mid-October on the back of strong inflows in the foreign exchange market, but weakened more recently, returning to around end-June levels. "Supporting the return to a market-determined exchange rate requires a gradual deepening of the foreign exchange market and avoiding any actions to manage the current account," the report said.

"Staff emphasized that deepening foreign exchange market liquidity should result in a rebound in trading volumes to levels seen some months ago and could only occur if banks are encouraged to manage foreign exchange flows via the interbank market, offering exchange rates to ensure foreign exchange flows into the system when needed."