The value of the United States dollar against the rupee rose Rs4.4 to Rs166 in the interbank market on Thursday at 1:31pm.
A day earlier, the dollar touched Rs161.6 against the rupee from Rs159 on close of business, according to the ready rates provided by the State Bank of Pakistan.
Experts say the major reason behind the rupee’s fall was the rate cut announced by the central bank. A high interest rate supports the rupee by encouraging hot money inflows into treasury bills.
But the pandemic has forced the SBP to slash the interest rate from 13.25pc to 11pc over two monetary policy meetings within just seven days. Bankers said the fall in interest rate weakened foreigners’ urge to invest in treasury bills while a further cut in the key rate is possible due an economic slowdown in the country.
Yesterday, SBP’s latest data had revealed that outflow of investment from T-bills in the first 20 days of March rose to $1.614 billion, which took the net foreign holdings in government papers down to $1.461bn from the peak of $3.4bn.
“The banks that handle exporters proceeds usually have been silent for almost two weeks now” a senior source in the banking system told Dawn on Wednesday. “The supply conditions have been tight in the market, and today the dollar rose even though no major payments had to be made during the day.”
There is fear in the currency market that export proceeds may witness a sizable decline this year. Textiles has lost export orders while the lockdown in Karachi and other industrial areas has already reduced the possibility for any improvement despite heavy incentives being given to the industry by the government.
They also said that the SBP’s decision to facilitate import of medical equipment and medicines and other imports increased the demand of dollars in the interbank market.
Since the open market is closed, no inflow of dollars took place from exchange companies to banks. The former play a vital role towards the foreign reserves cushion but the currency trading has almost come to a halt due to the coronavirus outbreak in the country.
However on Tuesday, the dollar was being traded at Rs160 in the open market even though operations were quite limited.
“The situation will improve once the lockdown is eased and the threat of the virus is over,” said Malik Bostan. He said Pakistan would not lose more than the developed countries as their stakes are higher.
After staying calm for almost half a year, the currency market started witnessing volatility from March 9 when rupee lost Rs3.65 in a single day.
Since then, the dollar has jumped by a cumulative Rs11.75 (or 7.6pc) to Rs166 as of today afternoon, compared to Rs154.25.