The immediate impact of the interest rate cut slashed the rupee’s value by a great margin on Monday as the open market reached close to Rs100 to the dollar, which led the central bank to call an urgent meeting with the exchange companies to keep the local unit away from reaching triple digits.

Before the Monetary Policy was announced, fears were high in the currency market, both inter-bank and open, that a further cut in the interest rate could trigger the rupee depreciation against the US dollar. The interest rate was reduced by 50 basis points to 9.5 per cent on Friday evening.

The US dollar was traded as high as Rs98.35 in the inter-bank market but settled slightly at a lower price of Rs98.26 in the second session.

“Demand for greenback is high and supply is not up to mark. It created gap of which the cost was high for the local currency,” said Atif Ahmed, currency dealer in the inter-bank market.

He said the dollar gained at least 50 paisa on Monday. The inter-bank market did not see any intervention or injection of dollars by the State Bank which had been a practice till recent past to support the local currency.Dealers said the shrinking foreign exchange reserves did not allow the central bank to use its precious currency for supporting the rupee.

The open market was more bullish as it pushed the dollar rate close to Rs100 and traded as high as Rs99.70.However, the dollar price declined particularly after the meeting of exchange companies with the Governor State Bank and Minister of State for Finance.Banking sources said the State Bank did not want to see dollar at Rs100 which could have a psychological impact on the market.

However, the Chairman Exchange Companies Association of Pakistan Malik Bostan who met the Governors and others leading a delegation in the State Bank said he made it clear that exchange rate should be controlled in the inter-bank market. He said the open market is simply a reflection of inter-bank market.

Exchange companies and currency dealers in the bank said the US dollar is also being smuggled to other countries and Dubai is the main destination for the currency.“At least $5-$7 million is being smuggled out. We used to receive $10-$12 million per day now we receive in the range of $5-$7 million per day eflecting volume of smuggling,” said Malik Bostan.

He said the State Bank should monitor some banks which have made a cartel and are responsible for the abrupt increase in the dollar price.However, analysts had predicted that any cut in the interest rate would boost the dollar demand and thus prices. Many termed the decision of interest rate cut at the time of general elections political rather than economic.