The US dollar appreciated by one per cent against the local currency in a single session to close at Rs161.48 on Monday, with the nine-month high leaving the exchange rate unstable just ahead of the market closure for Eidul Azha.

The sudden jump in dollar demand has caught the currency market by surprise. Currency dealers in the inter-bank market said the dollar was traded high throughout the day while it closed at Rs161.48.

On Friday, July 16, the dollar closed at Rs159.94 against the rupee. The dollar gained Rs1.54 on Monday — a gain of almost 1pc. The greenback was at Rs161.15 on Oct 23, 2020.

Unexpected jump in greenback demand surprises many

Currency dealers associated the big appreciation with an increase in the demand for the dollar in the inter-bank market. Interestingly, there is no shortage of the greenback in the open market. The surge in imports has widened the trade gap putting pressure on the dollar to appreciate more.

Some currency dealers in the inter-bank market said the sudden rise in dollar price could see a decline in the coming weeks as there is no shortage of the greenback.

However, importers fear that the dollar may appreciate more in the coming weeks and push up the cost of imports. This approach has turned into a rush for booking dollars for future imports.

“The dollar demand in the inter-bank market increased by 20pc in July,” said Malik Bostan, the chairman of the Exchange Companies Association of Pakistan (ECAP).

The State Bank also endorsed in a tweet that the imports were on the rise in FY21. Higher dollar prices support exporters.

Earlier, former secretary general of the ECAP and one of the biggest money changers in the country, Zafar Paracha, said that exporters were demanding the dollar rate at Rs161. The government has been providing maximum incentives to get higher exports.

The current dollar price is still much lower than the highest price of Rs168 in August 2020 which was mainly on account of higher outflows due to the Covid-19 pandemic.

“The exemption on inquiry for investments has ended on June 30 this year. This is also one of the reasons for low inflows and higher dollar demand,” said Mr Bostan.

Bankers said the inflow of export proceeds has also reduced hopes for further appreciation of the dollar against the Pak rupee. If the dollar falls in the coming days or weeks, the exports proceeds would certainly hit the market, said a senior banker. Despite record inflows during FY21, the exchange rate witnessed instability as reflected by the sudden jump of 1pc in the price of dollar in a single session on Monday.

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