Central bank may intervene in open market to stave off pressure on PKR

Increase of US$1.2 billion had been reported in foreign currency deposits of commercial banks in last four months, due to rupee devaluation speculation

KARACHI: As pressure keeps mounting on the rupee in open market due to immense demand of the greenback, there are chances that State Bank of Pakistan (SBP) may intercede in the open market by releasing more dollars.

This stems from the fact that SBP had assured to currency dealers it would release dollars when required in the open market, reported Express Tribune. Currently the price disparity between open and inter-bank market rate is around Rs2.

Due to intense demand of the dollar, around $15m are bought daily on the open market and around 90-95pc of it gets sold, which indicates that supply and demand of the greenback has narrowed down to almost zero.

Forex Association of Pakistan President Malik Bostan said “We will ask the central bank to release dollars on Monday or Tuesday. This intervention may help bring down the dollar value against the rupee.”

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He shared that people were converting more of their savings into dollars and firmly believed the rupee would continue its slide against the greenback and other currencies.

Earlier this month, Profit reported about the central bank having directed money dealers to reduce the dollar price by one percent to reduce the disparity between open market and inter-bank rates.

According to Bostan, rising political tension and uncertainty domestically and stiff US-Pak relations was propelling demand for the greenback.

But SBP had provided assurances than in case of liquidity issues, the open market would be supplied with dollars, which didn’t have any impact on the dollar value which stood at Rs107.60.

Till 28th October, currency dealers hadn’t requested the central bank for any additional supply of dollars to be injected, and the exchange rate was at the same level when the first meeting had been held.

A SBP official insisted these meetings had brought an element of stability to currency market this week and he predicted that the dollar could weaken in the days to come.

He added SBP had set no price cap on the dollar in the open market, but the intent of those meetings was to remove volatility plaguing the currency trade. However, he admitted that open market ran on fundamentals and economic indicators weren’t stacked in the central banks favour.

Also, the stability of rupee-dollar exchange rate throughout this week had squashed all speculative and volatility concerns from the market, he said.

An increase of US$1.2billion had been reported in foreign currency deposits of commercial banks in last four months. According to sector experts, the increase in demand of the US dollar had been fueled by speculation of a probable devaluation of Pakistan Rupee (PKR), which resulted in a sudden rise in forex reserves of commercial banks.

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