The dollar gained about Re1 against the local currency within a couple of weeks, reflecting fast appreciation of the US currency despite the fact that the exchange rate in the inter-bank market remained almost unchanged.
“The dollar was traded as high as Rs106.10 during the peak hours but finally settled at Rs105.70-80 at the end of the business day,” said Zaffar Pracha, secretary-general of the Exchange Companies Association of Pakistan.
However, exchange companies of ‘B’ categories, which are in a much higher number, kept selling the dollar above Rs106. They said the pressure could remain in the market before Ramazan.
During Ramazan, the dollar normally loses against the local currency due to large inflows mainly on account of Zakat and charity funds from across the world. Each year, Pakistan receives hundreds of millions of dollars during Ramadan as charity funds, Zakat and other aid to help the poor in the country.
Pracha said the exchange rate came under pressure from the imposition of 16 per cent federal excise duty on gross profit and 14 per cent sales tax by the Sindh government. He added, however, that the pressure would be diluted due to the influx of dollars during Ramazan.
“The open market was tight on Monday as there were more buyers than sellers, which indicates that people with dollars are trying to hold the currency for a better price,” said Anwar Jamal, another currency dealer in the market. Currency experts believe there is little chance for the dollar to remain above Rs106 in coming months. Those who are willing to earn through recent price escalation may face a loss due to inflows during Ramazan.
They maintain, however, that after June, the exchange rate could go through a change once the inter-bank market is set free to buy and sell at their own choices. Currently, the inter-bank market, currency dealers said, is strongly influenced by the State Bank which does not allow banking rates to cross Rs104.80-85. The rate is settled for more than two months.
The country has record foreign exchange reserves of $21.3bn, but the expected increase in debt servicing in FY17 and declining exports could minimise the strength of the reserves, which could in turn weaken the exchange rate stability.
“We are not waiting for deprecation of the local currency but the way rates in the inter-bank market are being controlled gives a sense of weak position of the rupee,” said Atif Ahmed, a currency dealer in the inter-bank market.
Currency experts said the widening gap in the rates of open and inter-bank market would not allow the banking rates to remain unchanged. They said the State Bank would not allow the open market to take the dollar far above Rs106.