The rate of dollar dropped to Rs155.60 in the inter-bank market on Wednesday. The last time it traded below Rs156 was on March 10, 2020. The dollar price has dropped by Rs 4.30 during 2021, which shows a 2.7% change. The green back value has decreased by 7.4% or Rs12.45 since it hit Rs 168.43 in August last year.
“The State Bank took several initiatives such as Roshan Digital Accounts last year during the pandemic,” said Zafar Paracha, the secretary of the Exchange Companies Association of Pakistan. “The dropping rate shows those initiatives have been bearing fruit.”
Inward remittances, the foreign exchange overseas Pakistanis send to the country, have been strong, he said. These remittances stood at $18.7 billion in the first eight months of FY2021 (July to February), which was 24% higher than the remittances during the same period last year.
Last month, the State Bank of Pakistan announced that remittances sent through Roshan Digital Accounts had crossed $500 million.
Pakistan’s current account has been in the surplus of nearly $1 billion in the first seven months of FY2021. It was in deficit of $2.5 billion during the same period last year.
BMA Capital Executive Director Saad Hashmi said the inflows through Roshan Digital Accounts and stable foreign exchange reserves have been the reason behind the decreasing dollar rate. Foreign exchange reserves with the SBP are standing in the vicinity of $13 billion for many weeks.
“The market sentiment is also positive regarding the rupee and people are investing in stocks now,”
When people expect the dollar rate to increase, some of them start buying greenbacks with an expectation to make money when it goes up. But when the expectations are that the dollar rate would fall or remain stable, people start to invest elsewhere, such as stocks. The dollar rate is now market-driven and the expectations are that it will stay in the range of Rs155 and Rs165.
The dollar is losing steam internationally and it’s not just the Pakistani rupee that has been appreciating–the Pound and Euro are on the rise as well. But in Pakistan, several other factors are also in play, not just the dollar’s international standing. Remittances have increased and the current account has also been in surplus for four straight months.
“There are several good initiatives taken by the State Bank,” said Malik Bostan, president of the Forex Association of Pakistan. “The demand for dollars has also been dropping.
“Overseas Pakistanis are taking interest in Roshan Digital Accounts. Meanwhile, the State Bank has also decreased the amount to be sent in remittances to $100, which has also increased dollar inflows,” he said. Bostan says exports have also been picking up and all these factors combined suggest that the dollar rate may drop even further.
He added that Pakistan now has more loan options from the World Bank, Asian Development Bank and China, therefore any significant drop in Pakistan’s dollar or foreign exchange reserves that affects dollar rates may not happen in the foreseeable future. He added that Pakistan’s reliance on the dollar may also reduce as China and Pakistan are now looking to trade in Yuan, the Chinese currency. Pakistan’s biggest import bills come from China.
“I think if the dollar rate drops below the
Rs155-mark, it could even go to Rs150,” Bostan said.
However, another senior research analyst, Karim Punjani, says the dollar may fall another rupee or two but will eventually bounce back to around Rs164.
“My sources in the banking industry say exporters have been cashing their export receipts as soon as they can to cash dollars when it is at a higher rate as the dollar rate has been dropping,” he said. Usually exporters normally wait and watch the dollar and if it is going up, they wait as much as they can to cash their export receipts, which are in dollars. Since it is now falling, exporters are now cashing export receipts but exporters won’t be doing this for long as there must be limited export receipts. The resumption of the IMF program next year and G20 debt repayments starting again from June will bring the rupee back under pressure.
In the long-term, it has been observed that the rupee loses 4-5% against the dollar every year on an average. This is because the inflation in the US is much lower than that in India, and hence, the dollar-rupee exchange rate needs to adjust for that.