KARACHI: The rupee continued to gain strength on Thursday, rising by over Rs2 to the dollar in the interbank market and by Rs5 in the open market.

During the last three sessions, the dollar has lost about Rs25 in the open market, whose rates have edged closer to the interbank market’s after a crackdown on hard-currency hoarders and smugglers.

The State Bank of Pakistan (SBP) reported the rupee’s closing price at Rs304.94 on Thursday against Rs306.98 a day ago, a rise of 0.7pc.

Currency dealers said the decline in the dollar’s interbank rate could be an impact of its fast depreciation in the open market. The interbank bank market is still short of dollars, and the importers still have to struggle to open letters of credit for imports, they said.

SBP reserves down for third week, fall $70m

Besides, the country’s foreign exchange reserves are also on the decline, falling by $70 million during the week ending Sept 1.

The open market reported the closing rate of the dollar at Rs307 compared to Rs312 a day before. Currency dealers said the trading remained thin as both sellers and buyers were reluctant to change their holdings. While buyers expect the dollar to fall further, sellers hope it will rebound in the coming days.

Currency experts said the fundamentals for the exchange rate have stayed the same. They said hopes are high for the inflows of $70 billion, as assured by the caretaker government. However, they maintained that time is running out for corrections in the economy, particularly because of declining inflows in the form of remittances, exports and foreign investment.

The central bank has stepped up supervision of the foreign exchange market, ordering banks to set up separate entities to conduct forex transactions and extending a clampdown on currency hoarders and smugglers.

Under a $3bn loan programme agreed in July, the International Monetary Fund told authorities to limit the premium between the local rupee’s interbank and open market rates to 1.25pc over any given five business days.

The currency has fallen sharply this year, including a 5pc decline to record lows since Aug 15, when the caretaker government took office.

The central bank said on Wednesday it was increasing supervision of FX transactions to fulfil that loan condition, and to “strengthen governance, internal controls and compliance culture in the sector”.

Banks will need to set up wholly owned exchange companies to conduct foreign exchange business. Those companies’ minimum capital requirements would be raised to Rs500m from Rs200m, the central bank said.

Enforcement measures against currency hoarders, black marketeers and smugglers have also been undertaken to bridge the gap between the market rates.

SBP reserves drop

The central bank reported on Thursday that its foreign exchange reserves dropped $70m to $7.78bn during the week ending Sept 1 because of debt repayments.

Pakistan has been paying huge amounts in debt servicing and needs about $25bn for this purpose in the current fiscal year.

The country’s total reserves on Sept 1 were $13.13bn, with the commercial banks holding $5.35bn.

Published in Dawn, September 8th, 2023