KARACHI: Pakistan’s national currency continued to recoup its value against the greenback on Monday amid a crackdown on dollar hoarding and smuggling that currency dealers have widely credited the country’s all-powerful army for spearheading.
The rupee was trading at an all-time low of Rs307.10 against the United States Dollar (USD) on September 05,2023. Since then, it has regained 5.2 percent of its value to close at Rs290.86 in the interbank market today, Monday, a six-week high.
Currency dealers have attributed the rupee recovery to what they call the “danda,” or stick, approach to deal with smugglers and hoarders, as tens of millions of dollars have poured back into Pakistan’s interbank and open markets since raids on black market operators began on Sept. 6.
While there have been other attempts to curb the black market when the rupee has been under stress, the latest push came after licensed dealers requested army chief General Asim Munir take action, rather than leave it solely to the civilian caretaker government that was put in place last month to run Pakistan till elections, currently expected to be held early next year. Munir had reportedly promised dealers “transparency in dollar exchange and interbank rates.”
Last week, Malik Bostan, chairman of the Exchange Companies Association of Pakistan (ECAP), told reporters a task force was made after the problem was escalated to the army chief.
“The danda approach is working perfectly fine,” Zafar Sultan Paracha, general secretary of the Exchange Companies Association of Pakistan (ECAP), said.
“The market sentiment has changed after the crackdown because the establishment was concerned and resolved to take strict action against those involved in manipulation.”
Controlling the open market rate is critical for Pakistan following a $3 billion bailout from the International Monetary Fund (IMF) that was agreed in July to help avert a sovereign default.
An IMF demand that the difference between the interbank and open market does not exceed 1.25 percent will be a key part of discussions set to begin later this month, before the release of the next tranche of the bailout.
Since the army chief’s intervention and the widespread crackdowns, the currency has recouped its value by Rs16.24 in the interbank market while a major fall was witnessed in the open market where the currency has recouped Rs36 to reach Rs293 against the greenback since September 04, 2023, according to central bank data.
Currency dealers said a downward trend prevailed in the market, mainly in the open market, where buyers were not turning up.
Paracha said inflows in the currency market had increased as exporters needed to cash export proceeds while remittances, going to the grey market previously, were coming in through regular channels.
“The daily trading volume has now increased to $15-20 million,” Paracha said, adding that the volume had dropped to only about $5 million in the open market before the crackdown.
About 90 percent dollars in Pakistan are traded in the interbank market which exclusively operates for banks who buy on behalf of their clients, mainly importers who need to make payments to foreign sellers of goods.
Pakistan’s key sources of dollar inflows, exports, remittances, and foreign direct investment remain insufficient to create a balance between supply and demand, compelling the country to suffer from twin trade and current account deficits.
Pakistani analysts said market sentiments had improved with some demand-supply stability after the crackdown.
“The crackdown against hoarders and smuggling of dollars has improved market sentiments, which needs to be continued for long-term stability,” Samiullah Tariq, director research at the Pakistan Kuwait Investment Company, said.
