KARACHI: Exchange rate exhibited a strange situation on Monday as dollar fell in the open market against rupee, but fetched greater value in the inter-bank market.

The open market sold dollar at Rs104.30 and bought at Rs104 which was lower than the rate of exchange. At the end of last month, it crossed Rs105.

The open market was driving the sudden devaluation of local currency in the inter-bank as it created space for the State Bank to push up the US currency by 2.2 per cent in a single session to Rs104.10.

On Monday, the dollar in the banking market was traded at Rs104.40, a rate that is higher than the open market.

Currency dealers said it was a rare situation with two possible explanations. First; the higher dollar value is being deliberately maintained in the inter-bank, and secondly, the liquidity shortage forced the open market to devalue the dollar.

Bankers said massive liquidity outflow from banks was noted in the last 10 days as it happens before Eid across the country.

Currency dealers in the open market said there was a rush in the market to sell foreign currency, specially US dollars while buyers of these currencies were negligible in terms of volume and numbers.

Currency dealers found it difficult to buy all dollars available on Monday due to liquidity shortage which forced sellers to accept lower dollar price.

Exchange companies get local currency from banks while banks were running short of liquidity. The State Bank has been injecting over Rs1 trillion in banking systems on weekly basis to keep them liquid.

While banks were already facing shortage of liquidity due to massive investment in the government securities that amounted to over Rs7tr, the issue of withholding tax aggravated the problem.

The government levied tax on banking transactions which led to country-wide protests by the business community. But the action taken by the business community to stay away from the banks and keep their money either in dollars, bonds or in the places other banks resulted in to fall in deposits of banks.

In the first two months of the current fiscal year, bank deposits fell by Rs121bn which was a significant amount, particularly in the wake of already existing deep liquidity gap in banks.

“Dollar is not the problem, it is the local currency which is not available and this was the reason that dollar could not get the prices it had been getting since the beginning of current fiscal year,” said Anwar Jamal, a currency dealer in the open market.

He said situation would normalise after Eid, but added that liquidity problem could continue to exist since business community is yet to decide about depositing deposit their liquidity.

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