KARACHI: The US dollar bounced back within a week to gain its lost position and set a new all-time high record price of Rs175.73 in the inter-bank market on Friday.

The open market also witnessed a record dollar price at Rs178.

Bankers dealing in the currency market said that the sentiment providing support to rupee on the promised $3 billion financial support and oil facility on deferred payment by Saudi Arabia proved short-lived. The US dollar depreciated against the rupee after the Saudi announcement but the base of the exchange rate remained weak.

The dollar rate kept increasing since May this year and rose to an all-time high of Rs175 in the inter-bank market in October, but the market later witnessed a sudden break in the bullish dollar trend and the Saudi announcement helped the local currency regain some of what it had lost. However, it proved short-lived. The US dollar, which fell below Rs170 on Nov 3, started gaining again and rose by Rs1.54 to Rs175.73 on Friday — bouncing back to its bullish position in only five days.

The dollar has gained Rs18.19 in the inter-bank market and Rs20 in the open market since the beginning of the fiscal year 2021-22 (FY22).

Uncertainty over IMF programme, delay in $3bn Saudi inflow blamed for local currency decline

“Uncertainty over the IMF programme as well as delay in Saudi support has affected the foreign exchange market. In the last few weeks, foreign exchange reserves were already down by $3bn and if more future funding is not confirmed it can affect the dollar’s demand-supply dynamics,” said Topline Securities CEO Mohammad Suhail.

Analysts said the situation was fluid as there was no fundamental change noted over the last couple of weeks. The dollar will keep rising against the rupee unless some strong measures are taken to stop this highly crucial exchange rate.

“The situation demands intervention by the State Bank which had been a common practice in the past. It looks free float exchange rate does not suit the economy since the country has been facing serious balance of payments problems for years,” said Atif Ahmed, an expert and dealer in the inter-bank currency market.

“There is no clear sign of improvement in the economy, while foreign exchange reserves have been declining due to higher debt servicing. The possible promised $3bn Saudi inflow could support the local currency but it will not be sustainable on a long-term basis,” said a senior banker dealing in the currency market.

The dollar buying in the inter-bank market did not show any decline despite some strict measures taken by the State Bank and the government about the import and outflow of dollars from the country.

The government has imposed 100 per cent cash margin on import of over 500 items to bring down the import bill and reduce the dollar demand. The first quarter saw $6.5bn import bill on average per month which created total trade deficit of $15bn.

The widening trade deficit has alarmingly increased the current account deficit which rose to $3.4bn during the first quarter of FY22 against a surplus of $865 million during the same period last fiscal year.

State Bank Governor Dr Reza Baqir had said that the current account deficit was expected to remain in a sustainable range of 2-3 per cent of GDP in FY22. However, it swelled to 4.1pc of GDP in the first quarter, exceeding the range projected by the SBP for the entire FY22.

The government depends largely on remittances and foreign borrowing to meet its current account deficit. During the first quarter, the government received over $8bn with 12.5 per cent growth compared to the same period last year. In FY21, the country received about $29bn in remittances.

Published in Dawn, November 13th, 2021