Pakistani currency dropped Rs0.05 and closed at Rs278.73 against the US dollar in the inter-bank market on Wednesday, maintaining its losing streak for the third consecutive day amid conflicting reports about the resumption of smuggling of foreign currencies from Pakistan to neighbouring countries.

According to the State Bank of Pakistan (SBP) data, the rupee has cumulatively dropped Rs0.23 in the past three working days compared to Rs278.50/$ on Friday.

Reports suggest illegal currency traders like Hawala-Hundi system operators have re-established their network in the country after a hiatus of several months. The illegal network operators are giving an additional Rs4 for a dollar, luring people to sell the foreign currency to them. This is a surprising development as it is encouraging the individual sellers of US dollars including overseas Pakistanis to stay away from legal markets including the inter-bank and retail currency markets, which will pile pressure on the Pakistani rupee. The situation may also impact inflows of worker remittances as well as export proceeds.

The market’s perception that the rupee will depreciate around 5% in the ongoing fiscal year is encouraging currency buyers to pay higher prices for the greenback. At the same time, the central bank is purchasing dollars from local markets to boost the country’s foreign exchange reserves and continue to smoothly repay the maturing foreign debt. This is also behind the weakening of the rupee in recent days. The market, however, ignored that bilateral creditors including Saudi Arabia, China and the UAE agreed to roll over $12 billion worth of deposits and loans given to Pakistan.