Rupee recovers sharply on crackdown against smugglers

Rupee’s strength has narrowed the gap between dollar values in open and inter-bank markets

KARACHI: Pakistani rupee has recovered its value by up to Rs2 a dollar in the open market after the government started a crackdown on smugglers of currencies and gold at airports, currency dealers said on Saturday.

“[A] dollar was available at Rs106.50 on Saturday against its recent peak of Rs108.50 the day before yesterday [Thursday],” Exchange Companies Association of Pakistan General Secretary Zafar Paracha told The Express Tribune.



He said the recovery came after the government began action against unauthorised dealers of currency and gold on Friday. “Authorities have nabbed two to three smugglers at the airports,” he said.

Forex Association of Pakistan Chairman Malik Bostan said the rupee price of dollar shot up to highs after gold smugglers generated additional demand for the greenback, UAE dirham and Saudi riyal.

Gold in Dubai is cheaper by Rs2,000 a tola (11.66 grams) than Pakistan. “Smugglers were bringing cheaper gold worth $5 million a day from Dubai into Pakistan,” he said.

“All flights to/from Dubai are under strict observation,” Bostan said, adding authorities arrested a woman carrying smuggled gold, mobile phones and currencies worth Rs4 million at Karachi airport on Friday.

Paracha added that an international airline had to reschedule its flight from Karachi to Dubai on Saturday, as thorough checking of passengers consumed a lot of time.

The rupee’s recovery has significantly narrowed the gap between the value of dollar in open and inter-bank markets. Contrary to the open market, the rupee has remained stable in inter-bank dealings for the last six months at around Saturday’s level of Rs104.65 a dollar, according to the State Bank of Pakistan.

All Sindh Saraf and Jewellers Association President Haji Haroon Chand said changes in bullion import and export rules had encouraged smuggling of the precious metal.

“Earlier, jewellers were bound to import the same quantity of gold, which they had exported in shape of jewellery. New rules demand 50% in gold and 50% in dollars against the export of jewellery,” he said.

Chand pointed out that an increase in income and withholding tax on gold was also encouraging smuggling. Currency dealers added that the crackdown against smugglers got under way after they explained to the central bank and the Ministry of Finance that smuggling was the single biggest cause behind the recent surge in dollar’s value.

Their latest meeting took place in Islamabad with Finance Minister Ishaq Dar on Friday. It was attended by officials of the Federal Investigation Agency, Intelligence Bureau, Federal Board of Revenue and Customs Department.



The meeting identified local airports that were being used by smugglers for free movement of gold and currencies in and out of the country.

Currency dealers said the rupee also recovered against dirham and riyal, the two other major currencies being used by the smugglers.

The rupee, however, depreciated against the pound sterling and euro. “The dollar has become weaker globally against major currencies,” Bostan said.

“There were [almost] no buyers of dollars in the local market today [Saturday]. Mostly, dollar sellers were visiting currency dealers,” he said.

The rupee may maintain its recovery drive on Monday, as businesses remained mostly closed on Saturday, he added.

Also the rupee had depreciated against the greenback due to tightening of regulations in property markets, which primarily runs on black money.

New rules have led to a sharp rise in valuation of properties and transaction fee, encouraging black money holders to invest in other undocumented areas like gold, currencies and bonds.

The currency crisis in India and rumours about cancellation of Rs5,000 banknotes and Rs40,000 prize bonds in Pakistan were cited as other reasons behind the recent depreciation of the rupee.

Published in The Express Tribune, December 4^th, 2016.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.