Currency dealers have sold $2.4 billion to the banks in the last year. The dealers said that since September last year, they have sold around $1 billion extra to banks, increasing the total to $1.4 billion.
While the increase in inflows is likely to surpass the selling target of $3.5 billion for the ongoing fiscal year.
The currency traders believe that the exchange rate may see a big change once the country comes out of the grey list in the next review of the Financial Action Task Force (FATF), accompanied by the slow and gradual appreciation of the rupee against the dollar.
The local currency gained about Re. 0.80 in a month, against the dollar which was being sold as low as Rs. 155.20 on Saturday in the open market. In the inter-bank, the dollar was being sold at Rs. 155.40 on Friday.
According to bankers, the decline in the dollar is mainly caused by the falling demand for the greenback from importers, a banker said:
The inflow of dollars has increased while outflow is low which is visible in the large decline of current account deficit.
The open market, which follows inter-bank rates, witnessed a 95% fall in dollar buying.
“The buyers have almost disappeared due to many reasons but mostly on account of tight monitoring of the foreign currency buyers,” said Forex Association of Pakistan President Malik Bostan. He said that the investment in greenback lost attraction particularly due to high-interest rates which have pulled the local currency deposits. Malik Bostan said:
There are only sellers in the currency market. I believe once the country comes out from the grey list, the selling would be much higher as many people still hold dollars due to looming FATF decision, Kashmir issue, and the recent political sit-in at Islamabad.
The open market is currently selling $10 million to banks every day. “We have sold $1.2 billion from June to Sept, I believe we can sell up to $4 billion to banks in FY20” he added.
The amount is significantly higher than the target of $3.5 billion set by currency dealers for the ongoing fiscal year.
The current account deficit, which was about $13 billion in the last fiscal year, is likely to reduce further in the current fiscal year.
The State Bank of Pakistan’s foreign currency reserves went up by $443 million in one week ended on November 1, 2019, mainly because the central bank is buying dollars to shore up its reserve positions.
The sudden jump in foreign currency reserves was not a result of any borrowing activity, so they reluctantly conceded that it seemed that the central bank was purchasing dollars to meet the requirement of IMF on Net International Reserves (NIR) keeping in view liquidity in the market.
The banks have bought it, not the government.