KARACHI: In what seemed like a repeat of similar episodes in the past, the rupee saw a steep fall against the dollar as soon as foreign exchange markets opened on Thursday morning.

Read: US dollar touches all-time high at Rs146.25 in open market

“The exchange rate in the interbank market closed today at Rs146.52 per USD from yesterday’s close of Rs141.40,” the State Bank said in a brief statement sent out by its spokesman via an instant messaging platform after the close of trade later in the day.

“The dollar began climbing almost immediately as trading began,” one treasury head of a major bank, who did not wish to be named, told Dawn. “We called the State Bank to ask what is going on, and were told that today there is no set value for purchasing dollars. That’s when the steep falls began.”

Dollar surges to record high beyond Rs150 in open market, Rs146 in interbank; steep drop in rupee value comes a day after PM met currency dealers

He was referring to the silent directives the State Bank whispers to the banks, prohibiting them from transacting in the greenback beyond a specified price — the preferred tool of intervention for the central bank for a number of years now. Every devaluation over the past few years has followed the same pattern, where the State Bank withdraws the silent supports suddenly and tells the market to find its own price.

The steep drop of 3.6 per cent in the rupee value in a single day came a day after Prime Minister Imran Khan had held a meeting in Islamabad — in the presence of his financial adviser and the State Bank Governor — with a delegation of the Exchange Companies Association of Pakistan, asking them for ways to build foreign exchange supplies in the country to help reign in volatility, according to ECAP chairman Malik Bostan.

Read: PM forms body to control rupee devaluation

The open market has seen shortages of foreign exchange in some areas over the past few days.

Conflicting reports circulated about what happened at that meeting. According to sources in exchange companies, the ECAP attendees had been pressurised to bring the open market rate down to within a certain band of the interbank rate. As evidence they cite the fact that the open market rate fell by Rs2 immediately after the meeting ended, a fall described by some as a “forced rate”, and that the director general of FIA had been in attendance who pointed out certain activity by the dealers that could be described as illegal.

But others who attended, and speaking on record, denied that the exchange rate was discussed. “The issue of devaluation was not even discussed in the meeting,” said ECAP president Shaikh Allaudin, who attended the meeting. Minister of State for Revenue Hammad Azhar also told the media on Thursday night that the issue of exchange rate was not discussed in the meeting.

Meanwhile in the market, some importers had no choice but to purchase dollars in bulk since they had maturing payments to make, and in a few cases, according to two different treasury heads of major banks, some paid as much as Rs148.25 to buy dollars in the interbank market. Most buyers, those who could afford to wait, stood on the sidelines though, according to conversations with importers and money changers.

“This movement reflects demand and supply conditions in the foreign exchange market,” the State Bank statement said. “It will help in correcting market imbalances.” The statement meant the State Bank effectively owned the devaluation, and linked it to market conditions rather than hoarding by the exchange companies.

The open market saw even more volatile action than the interbank market all day long. In some places, buyers are reported to have purchased dollars at rates touching Rs152, pushing the spread between buying and selling rates in the open market up to Rs4 and Rs5 in some cases.

In the morning, at least four currency dealers in Karachi that Dawn reached out to quoted rates around Rs148, but added that only $1000 could be purchased by any single consumer. At the close of the day, the ECAP reported the open market rate at Rs147, almost equal to the interbank rate.

The currency market was expecting shocks to the exchange rate, particularly after the induction of an IMF official as governor of the State Bank and the commitment given to the IMF that the government will move towards a “market-determined exchange rate”, according to a senior banker who spoke to Dawn again on condition that his name not be used. “We were expecting a change in the exchange rate by end-June, but it looks State Bank or IMF is in a hurry,” the banker said.

“After a gap of three weeks sellers returned to currency markets and sold their holdings. The high yield on dollar was an attraction for the sellers,” Mr Bostan told Dawn, claiming that there was no shortage of dollars in the open market.

Published in Dawn, May 17th, 2019