US dollar declines in open market amid interbank gains

Rupee gains stability on the back of $2.3bn loan transfer from China

ISLAMABAD: The value of the US dollar moved in opposite directions in the interbank and open bank markets on Monday, with the greenback registering gains in the former and declining by a wide margin in the latter.

In the interbank market, the rupee shed 46 paisas, or 0.22%, against the US dollar on Monday after failing to sustain its early gains.

The rupee rallied against the US dollar in the morning session with the greenback falling to Rs206.65 at one point. However, the local currency soon lost steam and faltered against the US dollar, which closed at Rs207.94 in the interbank market on Monday, according to the data shared by the State Bank of Pakistan (SBP).

In the open market, however, the US dollar fell by Rs1.5 to Rs206.50, according to rates shared by the Forex Association of Pakistan (FAP).

In one of the rarest events, the US dollar was traded below than the interbank rates in the open market, says currency dealer Wakilur Rehman. He said that the open market saw fewer buyers than sellers and, consequently, the exchange rate registered a decline.

Zafar Paracha, the general secretary of the Exchange Companies Association (ECA), said that banks were manipulating the rates to maximize their profit before an eventual drop in the value of the US dollar. “The government must step in to mitigate the situation,” he said, lamenting that commercial banks had turned the currency market into a stock market and the regulators must act.

Malik Bostan, who heads the Forex Association of Pakistan, offered a slightly different explanation. “In June, as a fiscal year draws to a close, companies transfer their profits outside Pakistan while other entities also enter similar settlements leading to capital outflows,” he said, terming it as the reason that demand for greenback existed in the interbank market.

Bostan said the value of the US dollar will decline in the interbank market too as soon as the next fiscal year begins on July 1.

He said that after a loan transfer of $2.3 billion from China and an agreement with the IMF, there would be little justification for the rise of the US dollar.

On Friday, the greenback appreciated by Rs1.27 against the rupee during interbank trading. Forex dealers pegged the development on the sharp decline of $750 million in the country’s foreign exchange reserves.

However, a $2.3 billion loan from China has bolstered the reserve since then.

In this context, the pressure on the rupee in the interbank market was unusual and caused by either manipulation or outflows from the country, as Paracha and Bostan explained.

The value of the Pakistani rupee has depreciated by Rs23 since April 11 when the current government took power. The country has made multiple payments for debt servicing in the past two and a half months.

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