Open-market: rupee continues to make giant strides against US dollar due to sentiment

The Pakistani rupee continued to strengthen against the US dollar in the open-market, and was selling at 318 during trading on Wednesday, as gap with the inter-bank rate narrowed further.

Dealers Business Recorder reached out to said the rupee was being quoted at 318 for selling and 315 for buying purposes for customers in the open-market, down Rs7 from Tuesday’s levels of 325 and 322.

The Exchange Companies Association of Pakistan (ECAP) also quoted rates at Rs313 and Rs316 during trading.

However, at the end of trading, the rupee settled at 323 and 320 for selling and buying, respectively, in the open market.

In the inter-bank market, the rupee appreciated marginally against the US dollar.

“Market noise suggests the currency may fall below 300 level in the open-market, and the inter-bank would follow soon,” said a dealer.

Market experts attributed the halt in currency’s fall in the open market to Chief of Army Staff (COAS) Asim Munir’s meetup with the business community on Sunday.

During the meeting, the army chief discussed the government’s economic plans and intentions to quell smuggling and speculative activity.

“The appreciation is being driven by the COAS meeting, under which issues pertaining to US dollar smuggling were discussed,” Fahad Rauf, Head of Research at Ismail Iqbal Securities Limited, told Business Recorder.

“Customers who have been holding dollars are now selling it in the open-market. However, the real issue is improvement in dollar inflows, which is a long-term solution.

“Administrative measures can control exchange rate in the open market, but controlling it in the inter-bank would require dollar inflows,” he added.

Additionally, personnel of law enforcement agencies were also deployed at exchange companies for monitoring of dollar trading on Tuesday.

Being under an International Monetary Fund (IMF) programme, the exchange rate gap between the inter-bank and open markets – called the premium by the IMF in its country report on Pakistan published after the Stand-By Arrangement’s approval by the Executive Board – needs to be around 1.25%.

It is pertinent to mention that concerns over Pakistan’s rising imports as restrictions ease, a widening current account deficit, and falling foreign exchange reserves renewed pressure on the rupee.