KARACHI: The rupee slid 0.63 per cent to a record low of Rs299 against the dollar in the interbank market on Tuesday, exten­ding losses for the third session, the State Bank of Pakistan data showed.

However, market sources said the dollar was trading higher than the official rate.

The rupee logged its previous record low of 298.93 on May 11, two days after former prime minister Imran Khan was arrested on graft allegations, leading to countrywide violent protests.

The local currency then strengthened to as high as Rs275.44 on July 4 after the previous government managed to sign a short-term, $3 billion loan agreement with the Internatio­nal Monetary Fund. How­ever, it has been on the decline since then, reaching close to the Rs300 barrier on Tuesday.

Asked why the dollar was increasing so fast, currency dealers in the interbank said the demand was much higher than the supply of dollars. “It’s not only the import pressure, but the backlog of imported containers has led to a rise in demand,” said Atif Ahmed, a currency dealer in the interbank market.

He said some banks were making money by providing importers with dollars. Some importers, having 50 to 100 containers in backlog, were paying up to Rs500,000 per container to banks to get dollars and get their containers released, he said.

Bankers, having no exact idea how many goods are in the backlog and how much dollars are needed to get them cleared from the ports, said that up to $5bn could be required to clear the backlog and this would be reflected in the import bill for the coming months.

The import bill in July was $4.219bn compared to $3.177bn in June, reflecting an increase of $1.042bn.

However, bankers said that opening letters of credit (LCs) was still a problem for importers, as banks are responsible for arranging dollars before opening such letters.

Under the Standby Arrange­ment with the IMF, the government is bound to open imports without restrictions. The previous government saved up to $22bn in the 2022-23 fiscal year by slashing imports, which helped bring down the current account deficit to $2.5bn from $17.5bn a year ago.

It was a big achievement, but the drop in imports resulted in slow economic growth of 0.29pc in fiscal 2023 compared to 6pc in the previous fiscal year.

“The supply of dollars is too low while the demand is increasing day by day. Practically, it is not possible for all banks to open LCs for imports,” a senior banker said.

He said inflows of remittances and export proceeds declined in July while the State Bank was not ready to spend from its reserves amid debt servicing. Pakistan needs $25bn for debt servicing in the current fiscal year.

“The State Bank is managing to protect the economy from external thrust, which is the reason that it has adopted a cautious approach regarding the reserves. Higher reserves will help strengthen the exchange rate,” said Zafar Paracha, general secretary of the Exchange Companies Association of Pakistan (ECAP).

He hoped that the demand for dollars would come down and the exchange rate would be stable once the backlog is clear.

The ECAP reported the dollar rate at Rs306 on Tuesday, showing an overnight increase of Rs2.

It was observed that several money changers, except a few large ones, are minting money by selling dollars at grey-market rates while buying them at rates provided by the exchange companies’ associations.

The grey market rate is Rs15 to Rs18 per dollar higher than the interbank market and Rs8 to Rs10 than the open market.

“This is true that some money changers are getting the benefit of the grey market by selling dollars at much higher prices than the rate issued by the exchange companies’ associations,” an official at a currency exchange firm said.

Published in Dawn, August 23rd, 2023