The uncapping of the dollar rate has started yielding positive results with panic selling of export proceeds gathering pace in the last three days.
Meanwhile, public companies have also started depositing up to $10 million a day in banks.
Stock market and banking sources forex firms say liquidity has improved significantly thanks to the inflow of export earnings, the increase in remittances, and the elimination of speculative transactions.
Exporters, previously reluctant to sell their holdings, eventually found the dollar’s speculative levels receding.
In the last three days, the dollar lost 7 rupees and closed at 269 rupees.28 Friday. The price of the dollar reached Rs277 in the interbank market and Rs283 in the open market.
However, increasing entry into the banking sector and open markets has meant that speculative prices have disappeared.
“Exporters fear that further depreciation of the dollar will cost them billions. This has led to panic selling of export earnings,” said Atif Ahmed, a forex firms trader who trades in the interbank market.
The exact dollar amount exporters are forex firms holding offshore is not known. By law, they must return the dollars within six months of export.
The FX market hoped that talks with the International Monetary Fund (IMF) would be successful and result in a dollar inflow.
“For the past week, we’ve deposited an average of $10 million into banks every day,” said Zafar Paracha, secretary-general of the Exchange Association of Pakistan (ECAP).
Listed companies were “dry” prior to the release of the exchange rate. This is because the administered exchange rate has created a huge gap between interbank and free market rates, setting the stage for a powerful black market. The illegal market offered a price higher than the official dollar price and funneled hundreds of millions of dollars into the undocumented segment. Much of it was smuggled into Afghanistan.
“Demand in the open market is gone because 90% of the open market are sellers because only 10% of buyers are buying dollars,” Paracha said.
Buyers on the open market were mainly people involved in illegal dollar trading.” They bought and sold US dollars from the informal economy,” he said.
Remittances also began to forex firms increase at banks and exchange offices as a direct result of the depreciation of the exchange rate.
“Open pit mining was a key decision…it was the only solution to eliminate the speculative forces artificially inflating the dollar price and massive smuggling,” Paracha said.
Bankers have announced that foreign investment in government bonds will also begin, as nowhere in the world such high-interest rates are available. The government proposes around 17.9% on Pakistan Treasury Bills and Investment Bonds (PIB).