The US dollar has often suffered huge setbacks from reduced interest rates on Federal Reserve, especially when other central banks around the world don’t follow, but there are other reasons for the downward trend. Again, currency dealers on Saturday speculated that the dollar will become weaker in the open market as expectations of a central bank intervention became more likely.
Dealers closed selling the dollar at Rs107.55 and buying it at Rs107.25 on Saturday, according to forex.pk.
“The dollar may immediately go down to Rs106.50 (selling rate). Our first target is to drag it under Rs107,” Forex Association of Pakistan President Malik Bostan told The Express Tribune.
“The dollar may depreciate by one rupee in a week or 10 days,” Exchange Companies Association of Pakistan General Secretary Zafar Paracha added.
Their forecast comes after talks with the central bank that assured currency dealers of ending the shortage of dollars in the open market using state reserves. Against this, the dealers would reduce dollar price by around 1% sooner than later.
They said the State Bank of Pakistan is expected to supply the required amount of dollars into the market next week.
The SBP has held at least two meetings with office-bearers and members of dealers associations in the last 10 days to press them to reduce the dollar’s exchange rate that remains deregulated.
The bank has advised them that the dollar’s price should not be higher than 1% from its price in the controlled inter-bank market. The greenback stood at Rs105.50 in the inter-bank market, according to the SBP.
They said the dollar’s rate has increased due to political uncertainty and speculation over the possible rupee devaluation.
However, Prime Minister Shahid Khaqan Abbasi has time and again ruled out devaluing the rupee. Finance Minister Ishaq Dar is also determined not to devalue the rupee as it would speed up inflation rather than reviving exports.
Paracha said there was “really no major shortage” of dollars in currency markets.
Dealers added that panic buying of the greenback is partly driven by perception of a weakening local currency and partly by over-accumulation of dollars by Hawala/Hundi operators.
They said importers of cars, gold and other commodities are not allowed to buy dollars in the open markets. That’s why they buy the dollars from black market at higher price than the open markets and utilize them via hawla/hundi operators.
The dealers have asked the central bank to allow them to sell dollars directly to commercial importers of the commodities as well. This will help dis-function the back markets and keep rupee-dollar parity stable, they said.
Liquidity needs of such commercial operators stand at around $400 million a year, a dealer estimated.
Secondly, they have also asked the central bank to allow dealers to receive remittances sent home by Pakistanis working abroad. This measure will help increase direct supply of dollars into the market and make the market more efficient since dealers would not have to ask SBP for supplementary supplies time and again.
At present, the currency dealers are allowed to receive the remittances via only two companies; Moneygram and Western Union. In comparison, banks are allowed to receive remittances through 150-200 companies.