Increases by Rs3 after central bank cut interest rate
The US dollar rose by Rs3 to Rs162 in the opening hours of the interbank market on Wednesday, its highest level against the Pakistani rupee in eight months.
According to market sources, the increase in dollar’s value can be attributed to the central bank’s Tuesday night decision to cut the monetary policy rate by another 100 basis points, bringing it down to 11%.
A reduction in interest rate meant foreign investors are selling the government’s treasury bills and taking their money out of Pakistan in the form of dollars, which pushed demand up, resulting in a stronger dollar.
Another reason market sources say is import orders. When the rate is cut, importers place orders and buy dollars, which also increases the demand for the foreign currency and it becomes expensive. It could also be due to a large, one-time import payment but the actual picture will be clearer in the evening after the State Bank updates its data on the outflow of dollars.
The last time the greenback traded at this level was in August 2019. During the seven months since then, the dollar was trading between Rs159 and Rs154, barely showing any quick or significant movement up or down, except the recent spike earlier this month.
In the second week of March, the dollar rose by Rs4 in less than a week after foreigners repatriated their profits and original investment in Pakistan’s short-term treasury bills. That was mainly in anticipation of the SBP’s rate cut.
Last week, the central bank cut the interest rate from 13.25% to 12.5%, but following a surge in coronavirus cases, the rates were slashed further and brought to 11%.
In March (till the 20th) alone, foreigners have taken $1.4 billion worth of investment out of Pakistan, which is more than 60% of the total amount of dollars foreigners have invested in short-term government securities since July 2019.