The mounting pressure on Pakistani rupee has spread chaos in the open currency market and has made analysts speculate that the State Bank of Pakistan (SBP) might intervene in the open currency market next week. Speculations suggest that the SBP is planning to release extra dollars to ease the pressure on the rupee as demand for the greenback continues to surge due to excessive buying.
The speculations stemmed from the recent assurance given by the SBP to currency dealers that it would provide dollars if and when needed in the open market, where the rupee trades with a difference of almost PKR 2 compared to the inter-bank market.
“We will ask the central bank to release dollars on Monday or Tuesday,” Forex Association of Pakistan President Malik Bostan told The Express Tribune on Saturday. “This intervention may help bring down the dollar value against the rupee.”
Moreover, he pointed out that Pakistanis are converting their savings into dollars, a fact indicating that people fear that rupee would continue to decline against the greenback and other major currencies.
The central bank had asked the currency traders to bring down the dollar exchange value by PKR 1 to PKR 106.20 in the open market. Unfortunately, it did not happen.
Moreover, people are also frequently travelling abroad and for that they are buying dollars from the open market. “A record 1.2 million people performed Umrah in last Ramazan (in June-July 2017),” he said.
Interestingly enough, the central bank held two meetings in the current month with currency dealers in an attempt to bring the dollar value down in the open market. It also gave them assurances that the central bank would step in if needed.
Nevertheless, neither the dollar value came down nor did dealers demand additional supply from the central bank. Also, the rupee-dollar exchange rate remained where it was before the first meeting between the SBP and currency dealers in mid-October.
It is pertinent to note that Arif Habib Limited, a research house, said in a report on Pakistan’s economy that it “expects the rupee to depreciate by 3% during fiscal year 2018.”
“The rupee has already depreciated by 4% from January to date in terms of REER (real effective exchange rate) as the US dollar has depreciated against other currencies,” the report said.