The difference between the USD-PKR exchange rate in the interbank and open markets narrowed on Thursday as the local currency depreciated sharply after the Exchange Companies Association of Pakistan (Ecap) removed an unofficial price cap.
The difference in rates between the markets, which had widened to Rs15 in recent months, now stands at Rs5.
The PKR was being traded at Rs255 per dollar — a record low — in the open market around 11:40am, according to data from the Forex Association of Pakistan. This equates to a depreciation of Rs12 or 4.94 per cent compared to yesterday’s rate of Rs243.
In the interbank market, the local currency was trading at Rs250 per dollar, down Rs19.11, or 8.28pc, from yesterday’s close of Rs230.89.
Ismail Iqbal Securities said the USD-PKR exchange rate in the interbank market was also at a record high and all the rupee’s gains since Finance Minister Ishaq Dar took over had been wiped out.
Analyst Fahad Rauf said it was the largest single-day depreciation in both absolute and percentage terms, at least since 2000.
Director of financial data and analytics portal Mettis Global, Saad bin Naseer, said the State Bank of Pakistan’s (SBP) move to allow the dollar to appreciate was a “very good thing” for the market. However, there were no sellers, only people looking to buy the greenback at the moment, he added.
Naseer said the central bank had repaid a loan to China on Jan 24 after which the country’s foreign exchange reserves further depleted. One of the main requirements to complete the ninth review of the International Monetary Fund (IMF) programme, which would unlock $1.2 billion, was to adhere to a market-based exchange rate.
After the move to lift the rate cap, inflows were expected from the IMF and elsewhere, Naseer said.
“It is a very good thing for the market and the stock market is also performing well as a result. The problem previously was only a lack of direction. There is direction now,” he said.
“Wider spreads between interbank and grey markets created pressure on the interbank market. This is a step closer to meeting the IMF’s condition,” said Komal Mansoor, head of strategy at Tresmark.
Meanwhile, Ecap Chairman Malik Bostan said that commercial banks were not supplying dollars to exchange companies despite the SBP’s directives. “The cap on the dollar rate has been removed which is why it is appreciating. It can continue to rise till supply resumes.”
He urged the SBP to ensure commercial banks supplied dollars to the exchange companies.
Price cap lifted
Foreign exchange companies lifted a price cap on Wednesday, which they said caused “artificial” distortions and created a black market, where the US currency was selling at higher rates. As a result, the rupee depreciated to Rs252.5 in early open-market trade.
However, within an hour of the implementation of the unprecedented decision by exchange firms, the SBP swung into action and crushed the move, forcing exchange companies to bring down the initial price of Rs252.5 to Rs243.
Before the cap on the rupee was removed, markets eyed three different rates to assess its value — the SBP’s official rate, the one assessed by the foreign exchange companies and the black market rate.
Shortly after taking over, Finance Minister Dar had termed the PKR’s depreciation against the US dollar “the mother of all evils” and introduced a host of administrative measures in collaboration with the central bank to keep the exchange rate in check.
However, as the country’s foreign exchange reserves declined rapidly, the financial sector had asked Dar to stop ‘managing’ the rupee-dollar parity, which is one of the key conditions set by the IMF for resuming stalled talks.