KARACHI: Soon after Pakistan closed the border with Afghanistan after two-day activity, the demand for dollar declined in the open market, resulting in the US currency shedding close to 1% in value against the Pakistani rupee over the last couple of weeks.
The US dollar is now trading at Rs106.75 in the open market.
According to a report, Pakistani currency dealers believe that State Bank of Pakistan (SBP)’s decision to impose 100% cash margin on the import of certain consumer items and the closure of the Pak-Afghan border have resulted in lower demand for the greenback.
“The demand for dollar in the open market came down to a two-month low on Wednesday,” said Forex Association of Pakistan (FAP) President Malik Bostan.
Bostan also claimed that the demand, as well as the value of the dollar in the open market, comes down whenever Pak-Afghan border is closed for a long time.
“Thousands of people, especially traders, cross the boundary daily to purchase dollars from Pakistan that puts additional pressure on the rupee in the open market. On the other hand, the SBP-imposed 100% cash margin requirement also resulted in a lack of demand for the US dollar,” he added.
However, SBP defended its decision in a statement saying that the decision was meant to protect the country’s foreign exchange reserves for the “incremental import of growth-inducing capital goods”.
“This regulatory measure would, interalia, discourage the import of these items and would have a nominal impact on the general public,” stated the SBP release issued in February.
Meanwhile, some sectors showed reservations on the SBP’s move because they believe it would increase the prices of imported items. However, the central bank believed it would have “nominal impact” on the general public.
Bostan said the dollar had increased to a value of Rs109 in the open market in January before sliding the next month.
“The gap in the dollar rate in the interbank and the open market reached close to Rs4 by mid-January when the greenback was trading at around Rs109,” he said. “However, the situation has now changed.”
Currency dealers now expect the dollar to trade in the range of Rs106-107 in the coming weeks.
Over the past two years, International Monetary Fund has repeatedly said that Pakistan’s rupee is overvalued by 5%-20%. The rupee has been one of the best-performing currencies in Asia for over three years despite the dollar’s sharp appreciation against other currencies.