The Pakistani rupee could slump around 10 per cent to 70 against the UAE dirham if the cap is removed on the US dollar by the South Asian country, say industry executive.
The Exchange Companies Association of Pakistan (ECAP) announced the removal of the cap on the US dollar on January 25. However, the State Bank of Pakistan continues to support the currency which has resulted in a drop in the country’s foreign exchange reserves.
The rupee-dollar gap has widened between the interbank and open markets rates due to the shortage of the US dollars in the South Asian country and political volatility.
The dirham was exchanging at 62.8 rupees for remitting funds through the exchange houses in the emirate while it’s touching nearly 69 in the open market in Pakistan against the UAE currency.
The rupee closed at 230 to the dollar on Wednesday. It slipped further, trading at 255 for $1 within hours of the market reopening Thursday.
The current account deficit, dwindling forex reserves, foreign direct investment and drop in remittances are putting pressure on the rupee, therefore, despite some support from the central bank, the rupee is weakening in the open market, according to analysts.
As per the Pakistan central bank tweet, the rupee was trading at over 230 against the US dollar (62.7 versus the UAE dirham) on Wednesday. But it fell to nearly 66 on xe.com on Thursday.
But the currency exchange houses in the UAE expect that the rupee may hit a low of 70 versus the dirham if the cap is also removed by the government.
“Currently the dirham-rupee interbank rate is around 62.89. If the Exchange Companies Association of Pakistan (ECAP) decides to remove the cap on the dollar and if it gets the approval of the Central Bank of Pakistan, then rupee interbank rates may touch 68 to 70 levels against the dirham. This will be approximately eight to 12 per cent drop from current levels,” a LuLu Exchange spokesperson said.
Rashed A. Al Ansari, CEO of Al Ansari Exchange, said the ECAP’s decision to remove the cap on the US dollar is being sought to end the surging “artificial” demand for dollars in the market and allow the rupee-dollar exchange rate to depreciate to its actual value.
“Amid a shortage of dollars, the gap between exchange rates in the interbank and open markets has significantly widened, drastically hurting the economy,” he said.
Al Ansari also expects that the rupee’s value against the dollar will further decrease in the coming days.
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