KARACHI: The US dollar hit 302 against the rupee in the open market on Saturday, going beyond the boundaries marked by the International Monetary Fund (IMF) to keep the difference in open and interbank exchange rates in the range of 1 per cent to 1.5 per cent.

“The US dollar rates kept fluctuating during the day and reached as high as Rs302,” said Zafar Paracha, general secretary of the Exchange Companies Association of Pakistan. On Friday, the dollar traded at Rs296 in the open market.

Mr Paracha said the dollar rate was higher than the prices being quoted in the media. Some currency dealers said the dollar’s appreciation was not mainly because of the currency’s shortage but due to uncertainty surrounding the caretaker government.

“The perception about the interim government in the currency market is that it will be independent of any political pressure, which means it will strictly follow the IMF instructions to implement the exchange rate,” Mr Paracha said.

Under the $3 billion Standby Arrangement signed with the IMF in late June, the previous coalition government agreed to maintain a single currency rate in both interbank and open markets, with a slight difference of up to 1.5pc increase in the open market’s value.

It was also quoted in the media that the IMF wanted 20pc devaluation of the rupee in the current fiscal year, which means the dollar should be in the range of Rs330-340 by the end of June next year.

Currency dealers believe that despite the higher foreign exchange reserves of the State Bank, the dollar is on the rise due to this arrangement with the IMF.

The dollar in the interbank traded at Rs288.40 on Friday, the last working day for the banking market.

“The interbank market has ample liquidity, which is why there’s no extraordinary pressure on the rupee,” said Tresmark CEO Faisal Mamsa.

Meanwhile, remittances sent by Pakistanis working abroad faltered in July, as has been the recent trend. However, with the current account expected to be in surplus, the rupee was expected to stay range-bound with an occasional spike above 290 per dollar in the interbank market, Mr Mamsa said.

Mr Paracha said the Kabul rate for the dollar was now almost the same as in Pakistan, something which he said had stopped the bulk smuggling of the US currency. However, he said Afghanistan needed dollars for its imports and this kind of dollar smuggling still existed. In contrast, Afghanistan does not export anything of significant amount.

Currency dealers are worried about the grey market, which attracts dollars at prices much higher than those in the open market. The current grey market dollar price was about Rs315, they said, fearing that it would keep rising along with the price hike in the domestic market.

Mr Mamsa said the premium emerged in the grey market due to the difficulty in buying and selling dollars and when demand outstripped supply.

“To get rid of this, the market needs to be deregulated. If there is material dollar demand, no amount of devaluation will erase the premium,” he said. “A good example is our twin country Egypt, where the premium is a whopping 20pc, even though the Egyptian pound depreciated by 63pc over the year.”

Published in Dawn, August 13th, 2023