Open market: rupee recovers after hitting 334 against US dollar during trading

The rupee recovered some ground against the US dollar in the open-market, and was selling at 330 during trading on Monday.

Dealers Business Recorder reached out to said the rupee was being quoted at 330 for selling and 327 for buying purposes for customers in the open-market.

Earlier during the day, the USD was being traded at 334.5 for selling and 331.5 for buying.

The Exchange Companies Association of Pakistan (ECAP), however, quoted rates at Rs329 and Rs326 during trading. At the end of trading, it said the rates were Rs328 and Rs325.

In the inter-bank market, the rupee closed above the 305 level against the US dollar.

Currency dealers said that the respite comes amid Chief of Army Staff (COAS) Asim Munir’s recent meeting with the business community on Sunday.

“There is a positive sentiment in the market after the COAS statement, as market now anticipates a crackdown against speculators,” Malik Bostan, Chairman of Exchange Companies Association of Pakistan (ECAP), told Business Recorder.

The currency dealer said that after the meeting, the rupee registered gains in the inter-bank, which is being reflected in the open-market as well.

“We are optimistic that the inter-bank rates would stabilise further in the coming days,” he added.

The currency has been under pressure against the US dollar, especially in the open market, after the government lifted import restrictions, a key condition of the International Monetary Fund (IMF).

Economic analysts have urged the authorities to find avenues to attract dollar inflows, as depletion of reserves is quickly eroding confidence on the local currency.

The foreign exchange reserves held by the country’s central bank are hovering at $7.85 billion level, as per data released last week.

Zafar Paracha, ECAP General Secretary, also said the COAS meeting was a “positive development”.

“The COAS was very optimistic during the meeting, as he talked about various economic issues including curtailing corruption and rampant smuggling, increasing the tax net and exchange rate.

“Nowadays, the illegal business of foreign exchange, also called grey market, has become very lucrative, and everyone, including those responsible to curb it, are involved in speculation.

“The Exchange Companies (ECs) only have a 10% market, while the rest has gone to the grey market,” he said.

Paracha said the open-market also faces supply issues as dollar inflows through remittances and exports have diverted to illegal channels.

Paracha expressed that the recent freefall of the currency does not align with economic fundamentals, and was largely due to speculation.

“The US dollar is being sold at a premium of Rs20-25 in the grey market i.e. Rs345-350, as compared to the open-market. However, we are optimistic that after COAS’ commitments, measures would be taken,” he said.

Meanwhile, some have highlighted that the IMF condition to maintain a currency gap of around 1.25% between the inter-bank and open-market is driving up rates in the latter.

The condition is being exploited by the speculators in the market, say experts.

The gap of less than 1.25% is one of the structural benchmarks set by the Washington-based lender for Pakistan.

However, the gap – called the premium by the IMF in its country report on Pakistan published after the Stand-By Arrangement’s approval by the Executive Board – has been widening over the past few weeks.