KARACHI: The rupee came under pressure a day after the State Bank of Pakistan cut the key interest rate with the dollar gaining Rs2.6 on Wednesday in the interbank market.
By the close of trade, the dollar touched Rs161.6 against the rupee from Rs159 on close of business Tuesday, according to the ready rates provided by the SBP.
Another major factor contributing to the rupee’s slide against the dollar was the outflow of hot money as disinvestment from government’s treasury bills created high demand for the greenback in the interbank market.
The SBP’s latest data revealed that outflow of investment from T-bills in the first 20 days of March rose to $1.614 billion, which took the net foreign holdings in government papers down to $1.461bn from the peak of $3.4bn.
Hot money inflows into the treasury bills due to high interest rates played a key role shoring up the exchange rate.
However, the virus outbreak changed the situation and the foreigners started withdrawing their investments with the net outflow in T-bills on March 24 standing at $101,990.
The pandemic also forced the SBP to slash the interest rate from 13.25pc to 11pc over two monetary policy meetings within just seven days. Bankers said the fall in interest rate weakened the foreigners’ urge to invest in treasury bills while further cut in the key rate is possible due fragile economic activity in the country.
“The banks that handle exporters proceeds usually have been silent for almost two weeks now” a senior source in the banking system tells Dawn. “The supply conditions have been tight in the market, and today the dollar rose even though no major payments had to be made during the day.”
There is fear in the currency market that export proceeds may witness a sizable decline this year. Textiles has lost export orders while the lockdown in Karachi and other industrial areas has already reduced the possibility for any improvement despite heavy incentives being given to the industry by the government.
They also said that the SBP’s decision to facilitate import of medical equipment and medicines and other imports increased the demand of dollars in the interbank market.
Since the open market is closed, no inflow of dollars took place from exchange companies to banks. The former play a vital role towards the foreign reserves cushion but the currency trading has almost come to a halt due to the coronavirus outbreak in the country.
However on Tuesday, the dollar was being traded at Rs160 in the open market even though operations were quite limited.
“The situation will improve once the lockdown is eased and the threat of the virus is over,” said Malik Bostan. He said Pakistan would not lose more than the developed countries as their stakes are higher.
After staying calm for almost half a year, the currency market started witnessing volatility from March 9 when rupee lost Rs3.65 in a single day.
Since then, the dollar has jumped by a cumulative Rs7.35 (or 4.76pc) to Rs161.6, compared to Rs154.25.
Published in Dawn, March 26th, 2020
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