Dollar reaches all-time high in the interbank where it is being traded at Rs255. The rupee plummet a further and lowest so far in inter-bank trade today as it depreciated by more than Rs24.
Earlier, the rupee had depreciated in both the interbank and open markets a day after the Exchange Companies Association of Pakistan (ECAP) removed an unofficial cap on the USD-PKR exchange rate in the open market.
The PKR was traded at Rs255 per dollar in the open market, which is a record low — according to data from the Forex Association of Pakistan. This is equivalent to the depreciation of Rs12 or 4.94pc.
However, the SBP took action and scuttle the move, forcing exchange companies to bring down the initial price of Rs252.5 to Rs243, within an hour of the exchange firms implementation of the unprecedented decision.
Foreign exchange companies lifted a price cap on Wednesday, which they said caused “artificial” distortions and created a black market, where the US currency was selling at higher rates. As a result, the rupee depreciated to Rs252.5 in early open-market trade.
The rupee’s official value has depreciated 11.23pc against the dollar since the start of the 2022-23 fiscal year, which ends on June 30.
Before the cap on the rupee was removed, markets eyed three different rates to assess its value — the SBP’s official rate, the one assessed by the foreign exchange companies and the black market rate.
In the interbank market, the local currency was trading at Rs240 per dollar, down Rs9.11 or 3.95pc, from yesterday’s close of Rs230.89.
Ismail Iqbal Securities said the USD-PKR exchange rate in the interbank market was also at a record high and all the rupee’s gains since Finance Minister Ishaq Dar took over had been wiped out.
Dollar Appreciation a good Omen
director of financial data and analytics portal Mettis Global, Saad bin Naseer, said the State Bank of Pakistan’s (SBP) move to allow the dollar to appreciate was a “very good thing” for the market. However, there were no sellers, only people looking to buy the greenback at the moment, he added.
Naseer said the State bank had repaid a loan to China on Jan 24 after which the country’s foreign exchange reserves further depleted. One of the main requirements to complete the ninth review of the International Monetary Fund (IMF) programme, which would unlock $1.2 billion, was to adhere to a market-based exchange rate.
After the move to lift the rate cap, inflows were expected from the IMF and elsewhere, Naseer said.
“It is a very good thing for the market and the stock market is also performing well as a result. The problem previously was only a lack of direction. There is direction now,” he said.
Wider spreads between interbank and grey markets created pressure on the interbank market. This is a step closer to meeting the IMF’s condition,” said Komal Mansoor, head of strategy at Tresmark.
Meanwhile, Ecap Chairman Malik Bostan said that commercial banks were not supplying dollars to exchange companies despite the SBP’s directives. “The cap on the dollar rate has been removed which is why it is appreciating. It can continue to rise till supply resumes.”
He urged the SBP to ensure commercial banks supplied dollars to the exchange companies.
Shortly after taking over, Finance Minister Dar had termed the PKR’s depreciation against the US dollar “the mother of all evils” and said the rupee would be strengthened.
However, as the country’s foreign exchange reserves declined rapidly, the financial sector had asked Dar to stop ‘managing’ the rupee-dollar parity, which is one of the key conditions set by the IMF for resuming stalled talks.