KARACHI: The foreign exchange reserves held by the State Bank rose $14 million in a week, the central bank said on Thursday, but the rupee remained under pressure and fell for the ninth consecutive day in the interbank market to close at 283.43 against the dollar.

According to the SBP data, its reserves increased $14m during the week ending Oct 27 to $7.51 billion, though the bank did not specify the contributing factors.

The uptick came after the central bank’s foreign currency holdings plummeted $220m in the previous week to $7.49bn — the lowest weekly position since mid-July when a big financial boost from the IMF and friendly countries doubled the central bank’s reserves to $8.73bn.

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Meanwhile, on Thursday, a team from the International Monetary Fund arrived in Islamabad to discuss the next tranche of a short-term loan that helped rescue the country from near default.

State Bank’s foreign exchange reserves tick up $14m

Currency market experts suggest the State Bank has been actively buying dollars for debt servicing and to fulfil other requirements.

In the current fiscal year, the banking market has seen a substantial increase in dollar inflows, particularly because of a crackdown on illicit currency exchanges nationwide, which has also reportedly curbed currency smuggling.

An earlier appreciation in the rupee’s value had sent ripples through the market, prompting exporters to liquidate their holdings, which in turn provided ample liquidity in recent months.

During September and most of October, the rupee kept strengthening and has been declared among the world’s best-performing currencies.

After hitting a record low of Rs307.1 against the dollar on Sept 5, the rupee started a sharp recovery after the country’s financial regulator and security agencies began taking action the next day to curb black market operations.

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From Sept 6 to Oct 16, the rupee rose against the dollar every single day, overall gaining some 11pc against the US dollar to Rs277.03.

However, with import restrictions easing, a surge in demand for dollars has helped the US currency gain value in recent days. As a result, anticipating further appreciation in dollar rates, exporters have been withholding dollars while importers have been scrambling to secure their needs.

Currency dealers in the banking market note that a shortage of supply is aiding the dollar’s rise. However, some experts attribute this trend to banks influencing market sentiment.

They say that banks are offering premium rates to entice exporters to sell dollars, while importers are eager to purchase before costs escalate.

On Thursday, the SBP reported the dollar’s closing price at Rs283.43, marking an increase of 78 paise from the previous day.

Meanwhile, the open market saw an increase of Re1 per dollar, raising the rate to Rs284.50. Exchange companies have also reported slow inflows and a shortage of foreign currencies in the market despite tight monitoring and crackdowns on smuggling and illegal currency operations.

After the latest SBP data, the country’s total foreign exchange reserves now stand at $12.58bn, including $5.07bn by commercial banks.

Published in Dawn, November 3rd, 2023