KARACHI: The rupee maintained a bullish trend and rose by 0.37 per cent against the US dollar in the interbank market on Friday.

The frequent appreciation of the local currency since the start of the current month has strengthened the perception in the currency market the greenback would depreciate to a certain level required to stabilise the exchange rate.

It is believed that the ongoing crackdown to check forex smuggling would keep the dollar rate on the lower side in the open market while the interbank has substantial liquidity as exporters have started selling their dollar holdings.

The dollar lost Rs1.11 on Friday to close at Rs296.85, the State Bank of Pakistan (SBP) reported.

Having touched a peak of Rs307, the dollar has lost about Rs10 or 3.25 per cent in the interbank market creating fear among the exporters who had been getting benefits of a weaker rupee. This falling trend has compelled the exporters to liquidate their dollar holdings.

Currency dealers said the higher liquidity was one of the reasons for dollar depreciation but they were not sure how long this trend would persist.

With a rapid depreciation of the dollar, the rate difference in the two markets comes to almost zero. The open market reported the dollar rate at Rs297 and remained unchanged since Thursday.

Currency dealers appreciated the crackdown against the illegal market and believe that the grey market of foreign currency has disappeared at least for the time being. The rate difference was widened to Rs26 before the crackdown started against the illegal currency dealers and several dozen traders involved in this business were arrested.

A the same time the tough stand against the dollar smuggling to Afghanistan and Iran also helped to improve the situation in the open market.

However, the SBP foreign exchange reserves maintained a falling trend and dipped to $7.639bn on Sept 8 from its high of $8.171bn in July, an outflow of $532m.

The remittances and export proceeds both declined during the first two months of the current fiscal year.

Some currency experts said the situation does not support a sustainable exchange rate in the coming months as the demand for dollars is rising for imports while the inflows are on the decline. They said exchange rate sustainability is the most required element for the stability of the economy.

Meezan to set up exchange company

Meezan Bank Ltd said on Friday it’s setting up an exchange company with an initial paid-up capital of up to Rs1 billion.

The move follows a recent structural reforms programme implemented by the SBP that encourages banks, especially those that are extensively engaged in foreign exchange transactions, to establish specialised exchange companies.

Earlier this week, United Bank Ltd also announced its decision to establish an exchange company.

Published in Dawn, September 16th, 2023