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Dollar spikes on strong demand from importers


Jul 31, 2015

KARACHI: The US dollar continued to move upwards on Monday with a 62-paisa gain in the interbank market to hit Rs157.51 against the rupee. The greenback has appreciated by 3.4 per cent within one-and-half months mainly on account of high demand.

Currency dealers said the dollar was getting higher price in both interbank and open markets despite very low turnover in the latter. The rising trend was reversed temporarily last week when the dollar depreciated against the rupee for a few days but it quickly regained its weight.

“Demand for the dollar is high on several accounts particularly due to high import bills. Exports could not earn enough to dilute or mitigate the negative impact of increasing imports,” said Asif Ahmed, a currency dealer in the inter-bank market.

The current fiscal year, particularly the second half, witnessed immense pressure as imports increased rapidly.

During the 11 months of the current fiscal year (11MFY21), trade deficit increased by 30pc to $27.46 billion compared to same period in FY20.

The rise in the trade deficit was mainly due to 22pc increase in imports in this period which reached $50bn. Last year in the same period, imports were at $40.8bn.

“The import payments were also higher this year due to almost double price of petroleum products compared to previous fiscal year while higher export also requires imported constituents for finished exportable products,” said Mr Ahmed.

However, bankers also witnessed payments of profits and dividends on foreign investments at the closing of financial years which increased the dollar demand.

“This increase in the demand for dollars is normal as many companies have to pay back their dues or profits at the time of closing of financial year which appreciates the greenback against local currency,” said a senior banker.

Profits and dividends during the first ten months of the current fiscal year were $1.312bn compared to $1.195bn during the same period in FY20. Currency experts said the outflow could easily cross $1.6bn at the end of this fiscal FY21 which means higher demand for dollars.

Mr Ahmed expects that profits outflow on foreign investments in June alone could be in the range of $250-$300 million, reflecting more demand for the dollar.

Since the first week of May, the dollar depreciated by 3.4pc or Rs5.23 as the price was Rs152.28 on May 7.

Chairman of Exchange Companies Association of Pakistan (ECAP) Malik Bostan said the dollar should not go higher anymore since the situation is much better on external front of the economy.

“Foreign exchange reserves are high, remittances are at a record-high and exports have increased, reflecting that all the indictors are in support of the strong local currency. However, the demand has created temporary pressure on the rupee that would be over after the end of the current fiscal on June 30,” said Mr Bostan.

Zafar Paracha, former general-secretary of ECAP, said the exporters are trying their best to appreciate the dollar as they want to reap maximum benefits.

“The exporters are willing to see the dollar at Rs160-161. There is lot of pressure on the government for further appreciation of the dollar,” said Mr Paracha. The State Bank claims that the exchange rate is not managed and it is market-based. However, market players believe that the central bank intervenes to get the desired results.

Published in Dawn, June 22nd, 2021


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