Spread between the inter-bank and open market foreign exchange rates has widened during the ongoing week, with experts attributing the gap to demand-and-supply dynamics as well as the recent relaxation of the import ban.
In the inter-bank market, the rupee settled at 219.41 on Thursday after depreciating Rs1.03 or 0.47% against the US dollar, as per the State Bank of Pakistan (SBP). However, data from the Exchange Companies of Pakistan (ECAP) suggested the rupee closed at 227.50 and 229.50 for buying and selling, respectively.
The difference of nearly Rs8-10 in the two markets was in the range of Rs2-4 last Friday (on August 19). At the time, the rupee was hovering between 214-215 in the inter-bank market, while trading in the range 216-218 in the open.
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Market experts told Business Recorder on Thursday that differences in rates emerge as demand for foreign currencies spike in the open market.
“Requirement of retailers (Exchange Companies) for different currencies is not being fulfilled, which has led to a gap in rates offered in the inter-bank and open-market,” Wajid Rizvi, Head of Research at Inter-market Securities, told Business Recorder.
Rizvi said demand has resurfaced after the government decided to lift the ban on imports.
“Dollar demand by importers has started to increase, whereas export proceeds have not been released yet, creating an upward pressure on the rupee,” he said.
Last week, Federal Minister for Finance and Revenue Miftah Ismail in a press conference said that the government on the request of international institutions had decided to remove the ban on imports of all products, a restriction that was imposed to control the outflow of dollars and arrest the rupee's massive decline in value.
Meanwhile, Rizvi informed that demand has also increased due to UAE travellers, as the Middle Eastern country has made it mandatory for passengers from Pakistan to bring in at least AED5,000 per visit.
“This has led to a shortage of dirhams in the open market while pushing ECs to convert dollars to dirhams as well,” he said.
UAE is among the top destinations for Pakistani travellers, and every month thousands flock to the Middle Eastern country for business and travel purposes.
On Thursday, according to ECAP data, the UAE dirham was trading at Rs63 and Rs63.50 for buying and selling, respectively. In comparison, the dirham was in the range of Rs59.60 and 60.20, respectively, last week.
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Meanwhile, another market expert told Business Recorder that the flow of remittances has dried up, pushing up funding requirement.
"Thus, there is a fundamental shift in the inter-bank, which is being reflected in a greater fashion in the open-market," said the expert on condition of anonymity.
“However, the situation is expected to improve as foreign exchange reserves build up in the coming weeks, amid inflows from the International Monetary Fund (IMF) and Qatar, which will strengthen the local currency in both inter-bank and open-markets."
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