The Pakistani rupee has reversed its gains against the US dollar after a nearly two-week long rally. In the past two days, the value of the greenback increased by Rs6, leaving many Pakistanis bewildered.
Since the rupee had been strengthening against the US dollar since early August, people expected the US currency to further shed its value. The reversal appeared inexplicable to many.
State Bank of Pakistan decision
Turns out a decision by the State Bank of Pakistan (SBP) has played a crucial role in reversing the gains.
Market sources told SAMAA Money’s Wakilur Rehman that on August 15 the central bank allowed the exchange companies to export dollars. On the next day, the value of the US dollar began to appreciate in the open market and within two days the rupee fell by Rs6.
Before the SBP took such a drastic step, currency dealers were forced to sell the foreign currency in the interbank market, but now they can export dollars until September 30, a currency dealer told SAMAA Money on the condition of anonymity.
The permission from the central bank has widened the horizon for them and they are exploiting the situation, the currency dealer said.
The US dollar climbed steeply throughout July enabling all the actors in the interbank market, including banks, exporters and importers, to make money, he said adding that now currency dealers too, who operated in the open market, have a field day.
They have now joined other stakeholders to earn profits, he said.
However, Malik Bostan, who heads the Forex Association of Pakistan, rejected the notion that the rise in the US dollar value had anything to do with the dollar export by exchnage companies.
He said the value of the greenback appreciated due to the market mechanism.
Bostan claimed the SBP node for the export of the US dollar has benefitted ordinary citizens because they were forced to accept lower exchange rates in the interbank market. Now, they can sell foreign currency at competitive rates, and meanwhile, money changers have also reduced their margin from Rs10 to a mere Rs2, he said.
Bostan said that exchange companies sought permission for export after commercial banks refused to buy dollars from them.
The Pakistani rupee began to appreciate against the US dollar on July 29 in the interbank market and the rally lasted until August 16, with the final day registering only negligible gains.
The value of the US dollar dropped by Rs26.04 during this period.
On August 17, the rupee lost Rs0.89 in the open market with the US dollar closing at Rs214.88.
In the open market, the reversal started a day earlier on August 16 and the rupee value dropped by Rs6 in two days. The US dollar traded at Rs216 in the open market.