The spread in rates between the inter-bank and open market thinned drastically on Tuesday as revival of the International Monetary Fund's (IMF) Extended Fund Facility (EFF) brought an end to "speculation" that had caused the gap to widen by at least Rs6-10 in the past two weeks.

Over the past few sessions till Monday, the spread in the two markets – inter-bank and open market – had widened sharply and risen to as high as Rs10 per dollar. The open market is the primary source for the wider public to buy foreign exchange.

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On Tuesday, however, the difference narrowed as the local currency gained nearly Rs8.5 in the open market, closing at 220 and 222 for buying and selling, respectively, against the US dollar.

On Monday, the rupee closed at 228.50 and 230.50 for buying and selling, respectively, against the US dollar.

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Speaking to Business Recorder, Forex Association of Pakistan Chairman Malik Bostan said the wide spread was due to speculation in the currency market. Resumption of the IMF programme has put an end to it, he added.

“Earlier, there was widespread uncertainty in the market with regard to funding from the global lender and subsequent funding from other multilateral financing institutions but now, Pakistan is certain to receive $1.1 billion from the IMF,” he told Business Recorder.

“This will open doors for additional funding from the Asian Development Bank, World Bank and friendly countries.

“The market is largely driven by sentiment. When there is uncertainty, the different between the value of a certain currency in the two markets rises,” he said.

Forex: spread between inter-bank, open market widens

At present, he added that banks were buying dollars from the open market because there is excess supply there.

On Monday, IMF approved revival of the EFF for Pakistan, paving the way for an inflow of $1.17 billion.

Additionally, in order to support programme implementation and meet the higher financing needs in fiscal year 2023, as well as catalyse additional financing, the IMF Board approved an extension of the EFF until end-June 2023 and an augmentation of access by SDR 720 million that will bring the total access under the EFF to about $7 billion.