The value of the US dollar against the rupee in the interbank market had risen Rs4.4 from yesterday’s close to Rs166 on Thursday at 1:31 pm.

A day earlier, the dollar closed at Rs161.6, increasing Rs2.6 for the day, according to prepared rates provided by the State Bank of Pakistan.

Experts say the main reason behind the rupee’s fall was the rate cut announced by the central bank.
A high interest rate supports the rupee by encouraging cash inflows into treasury bills.

But the pandemic has forced the State Bank of Pakistan to cut the interest rate from 13.25 percent to 11 percent at two monetary policy meetings in just seven days. Bankers said the drop in the interest rate weakened foreigners’ need to invest in Treasury bills, while a further cut in the key rate is possible due to an economic slowdown in the country.

Yesterday, the latest SBP data revealed that the investment outflow of T-bills in the first 20 days of March increased to $ 1,614 billion, reducing net foreign holdings in government documents to $ 1,461 billion from maximum of $ 3.4 billion.

“Banks that handle exporter earnings have generally been silent for almost two weeks,” a leading source in the banking system told Dawn on Wednesday. “The supply conditions have been adjusted in the market, and today the dollar rose despite the fact that there were no major payments to be made during the day.”

There is fear in the foreign exchange market that export earnings may witness a considerable decline this year. Textiles lost export orders, while the blockade in Karachi and other industrial areas has already reduced the possibility of any improvement despite strong incentives the government gave the industry.

They also said that SBP’s decision to facilitate the import of medical equipment and drugs and other imports increased demand for dollars in the interbank market.

Since the open market is closed, there was no inflow of dollars from exchange companies to banks. The former play a vital role in buffering foreign reserves, but currency trading has almost stopped due to the coronavirus outbreak in the country.

However, on Tuesday, the dollar was trading at Rs160 on the open market despite trading being fairly limited.

“The situation will improve once the blockade is alleviated and the virus threat is over,” said Malik Bostan. He said that Pakistan would not lose more than developed countries since its risks are greater.

After staying calm for almost half a year, the foreign exchange market began to witness volatility since March 9 when the rupee lost Rs3.65 in a single day.

Since then, the dollar has risen by Rs11.75 (or 7.6pc) accumulated to Rs166 as of today afternoon, compared to Rs154.25.