The upward trajectory of the rupee continued for a second day on Thursday as it extended its gains against the dollar in both the interbank and open market.

The development comes a day after the central bank decided to introduce structural reforms in the exchange companies’ sector in order to provide “better services to the general public and bring transparency and competitiveness”.

In the interbank market, the local currency gained Rs2.04 against the dollar to come to 304.94 from yesterday’s close of 306.98.

According to the Forex Association of Pakistan (FAP), the dollar was selling for Rs307 in the open market — down by Rs5 from the previous day’s Rs312 — by 12:45pm.

Mettis Global Director Saad Bin Naseer said that the “upside movement in the kerb market appeared to be primarily driven by speculative activity, and the interbank market was following same”.

“After implementing measures to control the kerb market and initiating operations against those responsible for this move, the market has become calmer in the interbank sector,” he told Dawn.com.

“This suggests that sentiment is the main driving force behind these market dynamics,” he said, expressing the hope that remittances would also start coming through legal channels.

“If government action continues […] the demand for physical dollars will reduce, and the supply from the open market to the interbank will increase, which will strengthen the PKR in the following days,” he said.

Currency dealer Zafar Paracha gave credit for the PKR’s gains to the army chief’s meetings with businessmen. He said that moral had been lifted and the “air of hopelessness” over the market had passed.

“Even exporters, who had hoarded dollars, are cashing in as the [grey] market is falling. Exchange rate companies are selling in the interbank,” Zafar said.

JS Global Capital’s Head of Research Amreen Sorani told Dawn.com that efforts to improve the money exchange sector from the regulator’s end had led to an uptick in the local currency.

“The material movement has been noted in open market rates only,” she said.

“From here onward, the movement is subject to scheduled payments we have pending. Import payments and commodity prices, especially oil, are key risks,” she said.

A day earlier, a crackdown on the informal currency market had started to help the gap between the interbank and open market rates edge closer to the International Monetary Fund’s (IMF) target of 1.25 per cent.

The State Bank of Pakistan had also stepped up supervision of the foreign exchange market, ordering banks to set up separate entities to conduct forex transactions and extending a clampdown on hard-currency hoarders and smugglers.

“Following the crackdown, illicit currency dealers are now in the shadows. The open market has stabilised, even though trading volumes have diminished,” Malik Bostan, FAP president had said.

Bostan had denied reports that law enforcement officials were deployed at exchange companies to monitor operations.

However, inside sources from the financial sector had indicated that authorities have tightened their grip on exchange companies, relentlessly pursuing illegal currency merchants across the country.

Bostan said in a video statement today that “people in civilian dress were conducting recce” because of which people involved with the “black market mafia” had been caught and gone underground.

He lauded the army chief for the clampdown, saying that it was for the first time in over a year that the open market rate of the dollar had gone below the interbank market rate.

The FAP president also called for an end to using Rs5,000 currency notes and digitising the economy.

Additional reporting by Hasaan Ali Khan and Shahid Iqbal