KARACHI: The exchange rate witnessed massive fluctuations on Friday as the dollar reached the intraday high of Rs109.50 in the interbank market.

However, the State Bank of Pakistan (SBP) said in a statement released in the evening that the movement in the exchange rate was based on demand and supply of dollars in the interbank market.

A few months back, the local currency witnessed depreciation of up to three per cent in a single day. Subsequently, the SBP came out with a statement that the exchange rate was adjusted to create a balance in the market.

SBP says depreciation will contain imbalance in external account

The then finance minister did not approve of the move, and the exchange rate went back to its pre-depreciation level in the interbank market.

Meanwhile, an enquiry was also carried out into the sudden adjustment. As for the latest movement in the interbank market, the SBP said the adjustment was market driven and based on supply and demand.

Surprisingly, the closing rate provided by the SBP was higher than the market rate. Currency dealers said the closing rate was between Rs106 and Rs106.50. However, the SBP said the dollar closed at Rs107.

During the day, the rupee depicted high and low of Rs109.50 and Rs105.55, respectively, said the press release. The central bank said exports recorded double-digit growth in July-October, foreign direct investment reached a nine-year high and workers’ remittances posted a modest growth. However, the continuation of high growth in imports led to the widening of the current account deficit and, consequently, to the depletion of foreign exchange reserves. “The pressures have persisted leading to the adjustment in the interbank exchange rate,” said the SBP.

“The SBP is of the view that this market-driven adjustment in the exchange rate will contain the imbalance in the external account and sustain the higher growth trajectory,” it added.

The SBP stated that the exchange rate will continue to reflect demand and supply conditions, adding that it stands to intervene in case speculative or monetary pressures emerge.

Currency dealers were shocked during the early session as the dollar rate increased sharply. Most of them were clueless about the reason for the sudden jump in the rate as well as dollar demand.

“The dollar rate kept rising and reached as high as Rs109.50, creating panic in the market,” said a banker who deals in the interbank market. He said the dollar started slipping before the close of the first session in the afternoon.

“The dollar adjusted to close at Rs106.50, which means importers who bought the US currency at Rs109.50 booked a huge loss,” said the general secretary of the Exchange Companies Association of Pakistan. He demanded that an enquiry should be conducted to find out why importers were forced to make a loss.

Published in Dawn, December 9th, 2017