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Dollar records hefty gains against rupee in open market

ni8mare

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Dollar records hefty gains against rupee in open market

Shahid IqbalUpdated May 14, 2019
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Demand for the greenback picks up in Ramazan due to seasonal effect as people travel to Saudi Arabia to perform Umrah.

KARACHI: The US dollar gained Rs2 against the rupee in the open market on Monday as there were strong speculations that the local currency will depreciate further after signing of a bailout agreement with the International Monetary Fund (IMF).

The IMF spoke of a “market determined exchange rate” in its statement on the programme, and the financial markets have not taken the words very well.

Speculation has broken out in the forex markets, with small and large investors looking towards the greenabck.

However, market sources on Monday did not report any panic in the market at this point.

According to currency dealers, dollar was trading at Rs143.70 on Monday but ground reports showed the rate to be closer to Rs144.50 in Karachi. Reports from other cities, such as Islamabad, were higher still. The rate was stable in the interbank market though, standing around Rs141.50.

“We are not allowed to cross the Rs141.50 line, though the potential for higher rate of dollar is visible” said a banker in the inter-bank money market.

“Fears of further devaluation as a result of the agreement with the IMF have depressed the currency market and the rupee may lose more against the greenback in the coming days,” said Secretary General of Exchange Companies Association of Pakistan Zafar Paracha.

Most of the currency dealers and experts have expressed their disappointment over the undisclosed conditions agreed between the IMF authorities and the government.

Consequently, hoarders remained active while the grey market found space to run illegal business with speculative rates.

Dealers were generally found confused in the post-IMF agreement scenario while they felt that they have been kept in the dark over the future of exchange rate and the overall economy.

“I believe foreign exchange inflows have increased by estimated five per cent due to Ramazan,” said President Forex Association of Pakistan Malik Bostan.

He said that normally inflows during Ramazan increase by 15-20pc but this year’s inflows have not been in line with that trend.

Moreover, demand for the greenback also picks in Ramazan due to seasonal effects as people travel to Saudi Arabia to perform Umrah and other religious rites.

“The dollar may gain more against rupee if the rate in the inter-bank market is changed upward.

Market was expecting a change on Monday but it was good that the inter-bank rates remained unchanged,” said Bostan.

Published in Dawn, May 14th, 2019
 

GodToons

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High Flux going on in Pakistan.
It needs to cut its drug economy and improve its productivity along with make its system transparent.

Hope it may improve.
 

Abdussamad

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and what are those sir
Free float of the rupee. There was a direct quote from the IMF rep who said that Pakistan must allow a market based exchange rate:
A market-determined exchange rate will help the functioning of the financial sector and contribute to a better resource allocation in the economy.



And why are the interbank rates unchanged

That is strange indeed. Seems the SBP is not yet ready to comply with IMF conditions:
“We are not allowed to cross the Rs141.50 line, though the potential for higher rate of dollar is visible” said a banker in the inter-bank money market.
 

ziaulislam

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I doubt rupee is going to fall its already at real effective rate..

However this is a moving boundary ..i suspect 3%-5% devaluation is bound to happen per year this will mean rupee will fall by 5-7rs every year till strong production and low lending kicks in
 

Abdussamad

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IMF conditionalities will apply only after the final approvals, not before.

Hah have you seen the diverting rates between the interbank market and the open market? The difference is now as much as Rs. 5 per dollar. This is what happens when you announce market based rates and then don't allow the interbank rate to adjust. Now people will prefer to send money to Pakistan via hundi/hawala because they'll get a better rate. People will do arbitrage by buying dollars in the interbank market and selling them in the open market. There'll be an outflow of dollars from the banking system unless this situation is corrected soon. We can't wait for the IMF board meeting. It has to be fixed now!
 

VCheng

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Hah have you seen the diverting rates between the interbank market and the open market? The difference is now as much as Rs. 5 per dollar. This is what happens when you announce market based rates and then don't allow the interbank rate to adjust. Now people will prefer to send money to Pakistan via hundi/hawala because they'll get a better rate. People will do arbitrage by buying dollars in the interbank market and selling them in the open market. There'll be an outflow of dollars from the banking system unless this situation is corrected soon. We can't wait for the IMF board meeting. It has to be fixed now!

It will all settle down once the bailout is signed and the conditions and the mechanisms agreed upon become clearer.
 

Fawadqasim1

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Hah have you seen the diverting rates between the interbank market and the open market? The difference is now as much as Rs. 5 per dollar. This is what happens when you announce market based rates and then don't allow the interbank rate to adjust. Now people will prefer to send money to Pakistan via hundi/hawala because they'll get a better rate. People will do arbitrage by buying dollars in the interbank market and selling them in the open market. There'll be an outflow of dollars from the banking system unless this situation is corrected soon. We can't wait for the IMF board meeting. It has to be fixed now!
Ha ha ha no money changer is buying above 142.70 I have tried my luck today that's why I am confident.
 

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