Dollar rises for second day

KARACHI: The US dollar appreciated on the interbank market but went the other way around on the open market on Tuesday, reflecting the strategy to bring the open market dollar price closer to the interbank rate.

The State Bank of Pakistan (SBP) on Tuesday reported the closing price of the dollar at Rs287.54 in the interbank market compared to Rs286.64 a day ago, showing an appreciation of 90 paise.

Market sources said both the appreciation of the dollar in the banking market and its depreciation in the open market were required under the new short-term loan agreement with the International Monetary Fund (IMF).

Financial market experts said the IMF expected a depreciation of 20 per cent in the rupee’s value this fiscal year, particularly against the backdrop of the lifting of government restrictions on imports.

The rupee’s depreciation will increase the cost of the dollar and thus would reduce imports. The State Bank removed restrictions on imports in June, which may lead to a jump in imports this fiscal year.

US currency depreciates in open market to Rs290

However, there is no other strategy in place if imports still jump despite the appreciation of the dollar. If that happens, it will add to inflation, projected at 25.9pc this year.

In the previous fiscal year, importers had been buying dollars from the grey market at much higher prices than in the interbank and open markets. The importers were buying at Rs20 to Rs25 per dollar higher than the official rates.

The IMF has also asked Pakistan that the open market dollar rate should not be higher than 1.5pc of the dollar price in the interbank market.

The open market rate fell by Re1 to Rs290 on Tuesday, narrowing the difference with the interbank market rate to around Rs2.50.

Meanwhile, the SBP’s reserves have doubled to $8.2bn during a month. The central bank governor revealed on Monday that Pakistan needed about $25bn for debt servicing in 2023-24. Even if the reserves reach $10bn, the country needs to arrange an additional $15bn to meet the deficit. The current account deficit is projected at about $6.5bn for the current fiscal year.

“Despite the improved situation, the country could not come out from the mess we have witnessed in FY23. The current financial year will remain a troubled year for Pakistan,” said a senior banker keenly watching the developments after the $3bn Standby Arrangement with the IMF signed in late June.

Open market currency dealers said the price was down due to cash availability and a lower number of buyers. Recently the State Bank has allowed the exchange companies to export foreign currencies to Dubai and bring 50pc cash dollars and the rest through the banking channel. The decision has increased the availability of dollars in the open market.