Karachi, September 11, 2023 – In a significant development, the US dollar plummeted to PKR 301 in early day trading on Monday at the interbank foreign exchange market. This marked a steep decline of PKR 1.95 in the dollar’s value from last Friday’s closing rate of PKR 302.95.
The sharp fall in the greenback’s value comes in the wake of a massive crackdown initiated by Pakistani authorities against illegal movements of foreign currency. The local currency, the Pakistani Rupee (PKR), has been on a continuous path to recovery since reaching an all-time low of PKR 307.10 against the dollar on September 5, 2023.
Currency dealers attribute this upward trajectory of the rupee to substantial dollar sales by exporters, which have provided strong support to the local currency in the interbank market. Market experts anticipate that this positive trend will persist in the days ahead.
Earlier in September, the open market witnessed the rupee plunging to 333.7 against the dollar, resulting in a nearly 9 percent disparity between the two currency markets, well above the International Monetary Fund’s target of 1.25 percent. However, this gap has now narrowed significantly to just 1.3 percent.
As the week concluded, the rupee was trading at 302 against the dollar in the open market. This remarkable stabilization of the rupee can be attributed to a series of administrative measures aimed at curbing illegal activities, encouraging hoarders to sell their holdings, dismantling cartels, and intervening verbally to discourage arbitrary price fixing. These efforts have resulted in a gain of 4 rupees against the dollar in the interbank market and 26 rupees in the open market.
The stringent actions commenced with a meeting between the country’s Army Chief and businessmen, during which promises were made to address economic issues. Subsequently, a series of measures were implemented, including acknowledging smuggling as a significant issue on the western borders, rigorous actions against money changers, expediting initiatives for investment facilitation, crackdowns on dollar smuggling and black market activities, and enhanced supervision in the forex market.
Finance Minister updates indicate that the International Monetary Fund review is scheduled for November, with expectations of the second tranche being realized by December. If these developments transpire, the rupee is likely to remain stable, and inflation is expected to subside.
In addition to these measures, the State Bank of Pakistan (SBP) has announced significant structural reforms for exchange businesses. The SBP aims to consolidate and transform them into a single category with a clearly defined mandate. This move comes in response to frequent regulatory issues and weaknesses in the exchange companies’ sector. The SBP has also raised the minimum capital requirement for exchange businesses from Rs. 200 million to Rs. 500 million, with compliance expected by December 31, 2023. These reforms are expected to further strengthen the stability of Pakistan’s currency exchange system.