KARACHI: The rupee sharply appreciated by 3.8 per cent, or Rs10.55, against the US dollar in the interbank market on Tuesday, reflecting the positive impact of the new deal with the International Monetary Fund (IMF).

Currency dealers said the dollar initially lost about Rs15 but eventually settled at Rs275.44, resulting in a loss of Rs10.55.

It was expected, according to currency experts, following Pakistan’s successful deal with the IMF for $3 billion over the next nine months. However, there was a feeling in the financial circle that the current deal with the IMF would be short-lived due to the country’s huge debt servicing requirement of $25bn in FY24.

“High expectations with the $3bn Standby Agreement and speculations appreciated the local currency more than market anticipation,” a senior banker in the interbank market said.

Rally driven by ‘speculative forces, market anticipation’

Asked about the share of speculative forces in the rupee rally, he acknowledged that there was a contribution but noted that it would become more apparent in the coming days. He mentioned that it was a profitable day as there were more sellers available, particularly exporters.

The exporters were concerned that the dollar might further decline due to higher inflows of remittances and export proceeds after the new IMF deal.

Bankers said the stuck-up amount of remittances also received in large numbers. Since the banks were closed for six days due to Eid holidays, transactions were delayed. The dollar was down by Rs23.49 from its peak of Rs298.93 on May 11.

However, the open market did not experience significant changes as the dollar closed at Rs279. During the extended holidays, only a few exchange companies were operating at the airports on last Saturday, and they traded the dollar in the range of Rs280-283, down from Rs289.

On Monday, the dollar price could not be determined due to a severe shortage of cash rupees, as banks were closed for public dealing. Some exchange companies traded the dollar in the range of Rs275-285.

“Tuesday’s rates reflected the interbank market rates, which are considered the actual rates. The open market rates, on the other hand, only show a slight change in the dollar rates,” said Zafar Paracha, General Secretary of the Exchange Companies Association of Pakistan.

“If the interbank prices remain stable at this level, the open market could see a further decline in dollar rates,” he said, adding that the dollar holders did not like this situation and avoided selling their holdings in the open market. On May 30, the dollar reached its peak of Rs312 in the open market. Since then, the dollar has lost about Rs33.

Dealers said the grey market, where the dollar is selling for Rs295-300, is still attractive for remitters.

Published in Dawn, July 5th, 2023