The US dollar has reached a high of Rs302 against the Pakistani rupee in the open market, surpassing the limits set by the International Monetary Fund (IMF) to maintain a 1% to 1.5% difference between open market and interbank exchange rates.
According to Zafar Paracha, the general secretary of the Exchange Companies Association of Pakistan, the US dollar rates experienced fluctuations throughout the day and peaked at Rs302. It should be noted that the dollar traded at Rs296 in the open market on Friday, suggesting an increase in its value.
Paracha further explained that the rise in the dollar price was not solely due to a currency shortage, but rather the uncertainty surrounding the caretaker government. In the currency market, the interim government is perceived as being independent from political pressures and more likely to adhere strictly to IMF instructions regarding the exchange rate.
Under the Standby Arrangement signed with the IMF in June, the previous coalition government agreed to maintain a single currency rate in both interbank and open markets, with a slight difference of up to 1.5% in the open market’s value. Recent reports suggest that the IMF wants the rupee to devalue by 20% in the current fiscal year, which would lead to a dollar range of Rs330-340 by June next year.
Currency dealers believe that the rise in the dollar’s value is a result of this arrangement with the IMF, despite the State Bank having substantial foreign exchange reserves. The interbank market, on the other hand, shows no extraordinary pressure on the rupee due to ample liquidity.
Faisal Mamsa, the CEO of Tresmark, explains that while remittances sent by Pakistanis working abroad have declined in July, the current account is expected to be in surplus. As a result, the rupee is expected to remain relatively stable, with occasional spikes above 290 per dollar in the interbank market.
Paracha highlights that the Kabul rate for the dollar is now equivalent to the rate in Pakistan, which has reduced the bulk smuggling of US currency. However, Afghanistan still requires dollars for imports, leading to ongoing dollar smuggling. In contrast, Afghanistan does not have significant export quantities.
Currency dealers express concerns about the grey market, where dollars are traded at prices much higher than those in the open market. The current grey market price for the dollar is approximately Rs315 and is expected to rise along with the price hike in the domestic market. Mamsa suggests that deregulating the market is necessary to address this issue, as a high demand for dollars cannot be eliminated through devaluation alone.
In conclusion, the surge of the dollar in the open market has raised concerns among currency dealers, who speculate that it is a result of the arrangement with the IMF. While the interbank market remains stable, the grey market attracts dollars at inflated prices. Deregulating the market may offer a solution to this ongoing problem, as witnessed in Egypt, where the premium for dollars is significantly higher despite a depreciation in the Egyptian pound.