KARACHI: The dollar has fast-tracked regaining its lost ground as it reached closer to Rs285 in the interbank market after hitting its lowest in the middle of October.

Amid drying up inflows coupled with strong demand from importers, the greenback maintained its bull run by gaining Rs7.7 or 2.8 per cent in the last 10 sessions.

Currency experts counted several reasons which ended the rupee’s winning streak.

According to bankers dealing in the interbank market, the short supply of dollars was the main reason for the changed sentiment. However, many believe that inflows fell to a lower level. The market also observed that the hopes for foreign investments from the Middle East have vanished after the Israeli attacks on Gaza.

At the same time, market experts see no big inflows even if the IMF releases the second tranche under the $3bn Stand-By Arrangement. The talks with the IMF are positive so far.

Experts say IMF’s second tranche unlikely to boost inflows

“The latest violence by terrorists in the country could further destabilise the political and economic environment and a kind of uncertainty has emerged over the future of economic trends,” said a senior banker. The government is sure about the economic stability but the growth in the economy is still fragile.

“The situation is not conducive for boosting economic activities, as the textile sector, the biggest exporter of the country, is suffering due to higher electricity and gas prices while the cost of doing business is the highest in the region,” said Amir Aziz, an exporter of finished textile products.

He said it is hard to continue with the current economic situation particularly the import restrictions and high cost of production.

Exporters find the dollar appreciation an encouraging sign for their profits but the imported inflation through high-valued dollars could jeopardise the growth, particularly in the large-scale manufacturing sector.

Just two months before the dollar appreciated to a record Rs307.10 on Sept 5 which compelled the government to start a crackdown to stop illegal currency business and smuggling.

It produced some positive results and brought down the dollar to Rs276.63 on Oct 16 from the peak of Rs307.1 on Sept 5, a decline of Rs30.47 or 9.9 per cent in 40 days.

“Rupee felt the heat last week losing Rs4 in five sessions. Export proceeds have slowed down as a substantial export amount is being adjusted against export forwards done earlier, ever since the crackdown on the forex market,” said CEO of Tresmark, Faisal Mamsa.

Typically, USD/PKR also gets volatile when IMF team is visiting and this time round, it would seem that the banks were not allowed to fund their nostros through buy-sell swaps either, resulting in forward premiums coming up and importers paying a wider spread to process their payments amidst a dearth of dollar liquidity, he said.

He said the forward premiums for one, two and three months were last traded at 200, 300 and 600 paise (significantly up from last week at 0, 0 and 90 paise).

“The dollar looks to consolidate at Rs285 for the coming week, with an occasional spike to Rs288, and with the market expecting it to recover once the IMF gives Pakistan a clean chit,” said Mr Mamsa.

Published in Dawn, November 5th, 2023