KARACHI: While the inter-bank market managed to keep the dollar below the Rs300 mark, the greenback soared to a record high price of Rs315 in the open market on Wednesday.

While there may be a psychological barrier for the banking market since it is still under some kind of official influence, the open market seems to be taking advantage of the free market mechanism.

The dollar was traded up to a price of Rs315 during the day, but the Exchange Companies Association of Pakistan (ECAP) reported the buying and selling prices as Rs309 and Rs312, respectively.

The desperation was noted in the open market as the average buyer was purchasing dollars at all costs. Currency dealers said the increasing demand had pushed the price so high that it went beyond the red line set by the IMF.

The government had assured the IMF before the renewal of Extended Fund Facility in June that the difference between the rates in the two markets would not exceed 1.25 per cent.

The current differential is about five per cent.

Currency dealers argued that while the IMF was not in favour of interference in the currency market, the demand for keeping the differential at 1.25 per cent was in itself an interference.

The exchange companies contend that the open market is a reflection of prices in the inter-bank market, but the rise of dollar in open market belies this explanation.

The inter-bank market noted a further appreciation of dollar by 63 paisa to reach Rs299.64, compared to Rs299.01 the previous day. Currency dealers said the situation had not changed. The demand is high and backlog for clearance of previous imported containers was on long queue for dollars.

High public debt

The increasing dollar price is a serious cause of nervousness for the government as it has raised the public debt unexpectedly high. Former finance minister Ishaq Dar said in a recent tweet the devaluation of rupee had raised the public debt by Rs9.3 trillion in FY23.

“The struggle to keep the dollar below Rs300 won’t work. Within a few days the dollar will cross this line. This will happen because the demand is high and there are no inflows in the pipeline,” according to Atif Ahmed, a currency dealer in the inter-bank market.

Observers feel that uncertainty on the economic front is growing and the currency market is sensitive to political developments. A currency dealer who claims to know the mind of policy makers, said political uncertainty had made the common man desperate, leading to “dollarisation of the economy”.

Published in Dawn, August 24th, 2023