KARACHI: Once again the dollar breached the Rs300-barrier in the open market on Wednesday, widening the exchange rate differential to over Rs14 compared to the interbank market.

Currency dealers said the shortage of dollars was the main reason for the price hike, however, other factors also influenced the exchange rate in the open market.

The dollar was traded as high as Rs301 in the open market while the Exchange Companies Association of Pakistan (ECAP) reported the closing price as Rs299.70. This rate was Rs14.30 higher than the interbank rate of Rs285.40 against the dollar on Wednesday.

On Tuesday, the rupee remained stable against the dollar and closed at 284.96 in the interbank market.

Exchange rate gap with interbank widens to Rs14.30

“There is a shortage of dollars in the open market and it is more serious in other parts of the country compared to Karachi,” said ECAP chairman Malik Bostan.

He said the open market rates were surging as banks were reluctant to pay dollars imported by the exchange companies through banking channels after converting other foreign currencies into greenbacks in Dubai.

“Today banks provided some cash dollars in Karachi, but currency dealers in other parts of the country could not get dollars, which escalated the dollar prices unexpectedly high,” he said.

The State Bank of Pakistan has been trying to manage the exchange rate with limited resources as its forex reserves stand at $4.4bn. The government has been unable to convince the International Monetary Fund to release the pending tranche of $1.1bn, while inflows in the shape of foreign direct investment and remittances were also declining.

Most of the currency dealers have complained that the ongoing political crisis is the primary reason for the increase in the dollar price. They believe that if the crisis continues, there will be no end to the appreciation of the dollar.

Mr Bostan said the remittances also declined by 29pc or $3.4bn to $22.741bn during the July-April period of 2022-23 from $26.143bn due to the very high rate being offered by the hawala market (grey market).

In April, the country received just $2.2bn while the market was expecting $2.5bn due to traditionally higher inflows during the holy month of Ramadan.

“The demand for Saudi riyals has increased with the start of Haj flights from Pakistan,” said Mr Bostan, adding that due to the very limited availability of Saudi currency, the exports of currencies to Dubai have significantly decreased.

This has resulted in a low volume of imports of dollars against foreign currencies from Dubai, thereby exacerbating the shortage of dollars in the market.

Published in Dawn, May 18th, 2023