The rupee continued its upward trajectory on Tuesday against the dollar during morning trade in the interbank market, with analysts attributing the gains to an ongoing crackdown seeking to check illegal outflows of the greenback.

The local currency closed at Rs299.89 in the interbank market after gaining Rs1.27 against the previous close of 301.16, according to the State Bank of Pakistan.

In the open market, the greenback was being bought for Rs296 and sold at Rs299, according to the Exchange Companies Association of Pakistan.

“The rise in the open market rate can be attributed to regulatory reforms implemented in the money exchange sector,” said Syed Faran Rizvi of JS Global Capital.

“These reforms have significantly narrowed the gap between the open market and intermarket rates, reducing it from a recent high of 9pc to nearly zero.”

Intermarket Securities’ Head of Equities Raza Jafri told Dawn.com that the PKR’s recent appreciation “appears to largely be driven by administrative measures”.

He added that it could be argued that the exchange rate “is broadly near market-clearing levels given that the August trade deficit was roughly equal to remittances”.

“Of course, there may be interim spikes and volatility if the current crackdown is eased or if there are large payments, but the PKR may stabilise around current levels for the time being,” Jafri said.

He said foreign direct investment (FDI) from Gulf countries could result in the rupee’s further appreciation “but there isno concrete timeline in place for this”.

Topline Securities Chief Executive Officer Mohammad Sohail said that the crackdown on the illegal currency business was having an impact on speculators and hoarders.

“Not only is the PKR is appreciating, but the premium of the open market is almost gone, thereby providing some confidence to investors and business community,” he said.

Currency dealers have reported that the open market is now flush with dollars and will sell more than $100 million to the banks this week, while they sold $20m in the last two days of the previous week.

“A flurry of administrative measures during the last two weeks had worked wonders for the market as the rupee grazed the 300 mark again,” Komal Mansoor, the head of strategy of financial planning firm Tresmark, told Dawn.com yesterday.

“We also see a lot of verbal reinforcement of these measures,” she told Dawn.com yesterday. “However, the market doesn’t expect sustained or significant gains and we may see the rupee consolidate around the 295 level in the near term.”

Mansoor added that whatever happens in the upcoming Monetary Policy Committee meeting on Sep 14 and the level of administrative supervision will be pivotal for the future course of the currency.

Last week, caretaker Prime Minister Anwaarul Haq Kakar had said a crackdown to prevent cross-border smuggling was initiated across the country.

Likewise, interim Interior Minister Sarfraz Bugti had reiterated the caretaker government’s resolve on Sunday to take elements involved in smuggling and hoarding to task, including those accumulating dollars.

“We are announcing prize money for those people … who become our informants and tell us where smuggling and hoarding, [including] of dollars, is happening,” he had said during a press conference yesterday.

The interim government’s initiative was in line with Chief of Army Staff Gen Asim Munir’s assurance to the business community earlier this month of fostering transparency in dollar exchange and interbank rates.

Some currency dealers suggested that this situation could have happened earlier and could have saved the country from an extremely dry market. Before the crackdown against the grey market, the dollar in the open market had skyrocketed, reaching as high as Rs332, and it was even higher by Rs10 to Rs15 per dollar in the grey market. The surplus of dollars, which is being sold to banks, was, in fact, going to the grey market. The grey market had cost the country $8.2 billion in FY23, as remittances dropped by Rs4.2bn, and export proceeds fell by $4b.

The huge losses were borne by the country, but no efforts were made to stop massive smuggling and illegal trading of foreign currencies. Dollars were smuggled to Afghanistan, and huge payments in dollars were made against petroleum products being smuggled from Iran.

The caretaker government has arrested a large number of currency smugglers, and a list has been prepared to identify the people involved in the smuggling of oil from Iran. Outflows of dollars to both borders have been stopped, and the largest border with Afghanistan has been closed for the last four days.

More to follow Additional reporting by Shahid Iqbal