KARACHI: The rupee, facing the brunt of a dollar shortage, fell 2.6% against the dollar on Monday as speculators withheld foreign currencies in hopes of further gains.
The dollar resumed its upward trend and closed at 308 rupees, up 8 rupees from Friday’s close, as open markets were dry despite very low trading volumes, currency dealers said.
Confidence deficits were also pointed out, with people arguing that the National Bank of Pakistan and the government were planning to artificially depreciate the dollar on the open market. This perception discouraged the general public from selling foreign currency and waited for further changes.
The SBP last week allowed banks to buy dollars from the open market for credit cards used for international payments. This decision caused the dollar’s value on the open market to plummet, falling from 11 rupees to 15 rupees per dollar. The dollar hit a low of Rs 298 to Rs 299 compared to the previous range of Rs 318 to Rs 320.
Currency exchange companies offered a price of 308 rupees to the dollar on Monday. But they didn’t really have dollars available. These rates are indicative and actual rates are determined by a gray market that operates in parallel with statutory rates.
People who stock up on foreign currency in anticipation of further price increases
Zafar Paracha, general secretary of the Association of Exchange Companies Association of Pakistan (ECAP) said, “Although the exchange company business has thrived at the expense of legitimate inflows such as remittances and export earnings, the gray market has already taken a toll on exchange companies. I am replacing,” he said.
The bank used to spend between $120 million and $160 million a month on credit card purchases. However, the SBP last week issued a notice allowing banks to acquire dollars from the bank market for a limited period of two months.
Bankers have expressed concern over the SBP’s decision, which appears to only benefit those with sufficient funds to travel abroad and shop online. They said opening import letters of credit remains a difficult task. The SBP has tried to regulate all dollars flowing out of the country, but the decision seems to contradict that very policy.
Foreign companies investing in Pakistan made only $253 million in profits in the first 10 months of 2023, compared with $1.3 billion in the same period last year. This profit retention is detrimental to foreign investment in Pakistan, which is already among the lowest in the region.
“There is no doubt that the SBP and the government are influencing the exchange rate of the banking market and the exchange rate has remained in the range of INR 280 to INR 290 for the last few months,” said Atif, an inter-currency dealer. Mr Ahmed said. – Banking market.
Meanwhile, the rupee fell 0.18% against the dollar in the interbank market. The dollar closed on the interbank market at 286.19 rupees against Friday’s rate of 285.68 rupees, according to the National Bank of Pakistan.
Paracha said the gray market dollar rate on Monday was 320 rupees. “How can the government persuade Pakistanis abroad to send money through banking routes and bear the loss of Rs 22 per dollar,” Paracha said, adding that remittances were 13% in 10 months of the 23rd fiscal year. He added that it was the reason why it was so low. He said export earnings reflected a similar situation.
Currency experts point to another serious flaw in the SBP’s decision, which allows importers to arrange dollars for imports, but not a designated window for buying dollars. is not provided. As a result, importers have no choice but to capture dollars from the Fundi and Hawala markets.
“The illegal market is thriving because of the legal decision to drive importers into the gray market,” said one senior banker.
Posted at Dawn on June 6, 2023
