Rupee falls against dollar in early trade

KARACHI: The rupee rate in the interbank and open markets has started declining, analysts said on Thursday.
A few days ago, the exchange companies had announced removal of a cap on the dollar rate, the analysts at Topline Securities said.

Since the appointment of Ishaq Dar as the finance minister on September 28, 2022, the rupee in the interbank market is moving in a narrow band and was being managed to show signs of stability.

In fact, the rupee gained against the dollar after touching the low of Rs240 before his appointment as he believed the local currency is undervalued.

However, a sharp fall in the State Bank of Pakistan’s (SBP) forex reserves to $4.6 billion on January 13, 2023 from $8 billion in September 2022 led to a rise in the spread between the interbank and open market rates and also led to berth of black market rate due to low supply.

Now, it looks like that amid desperate efforts to revive the International Monetary Fund (IMF) programme, the rupee is moving back to market forces.

On Thursday, the interbank rate for the dollar was in the range of Rs238 and Rs250 in the morning with the deals executed at around Rs240, down Rs9, or 4 per cent, from the last closing of Rs231.

The local currency has declined 26 per cent in a year and 33 per cent in two years against the greenback.

Similarly, in the open market, the exchange companies has quoted it to be trading at around Rs255 in the morning trade, compared with Rs243 on Wednesday. Thus, a gap between the official and black market is reducing.

“To recall, in a latest note on the falling workers remittances dated January 16, 2023, we had highlighted that due to the administrative measures to control the dollar rate and falling foreign exchange reserves, the spread between the interbank and black market rates had widened to as much as 10 to 15 per cent, compared with the historic spread of 2 to 3 per cent, which was leading to a fall in workers remittances,” the Topline Securities analysts said.

“This adjustment, we think, is also in line with what the IMF has urged repeatedly that the exchange rate should be driven by the market forces and it should not be managed.”

Prime Minister Shehbaz Sharif has recently shown the government’s commitment to complete the IMF programme.
“We have given the IMF a clear message that we want to complete the ninth review. We are ready and want to sit down regarding your conditions so that it can be concluded and Pakistan can move forward,” the premier said.

In a detailed note on debt restructuring dated December 3, 2022, the analysts had highlighted that the adjustment in the rupee against the dollar is an eventuality given Pakistan’s huge debt repayments and forex reserves situation.
The analysts maintained their exchange rate forecast and expect the rupee/dollar exchange rate to trade close to Rs270 by June 2023 in the interbank market.