Currency recovers after falling to Rs113.5 to the US dollar

Dealers say SBP’s Jan 1 notification reason behind shortage of greenback

KARACHI: Pakistan’s currency recovered around 1% to close at Rs112.20 to the US dollar in the open-market on Tuesday, after the State Bank of Pakistan (SBP) verbally withdrew a recent notification that hindered supply of the greenback significantly, pushing it higher, currency dealers reported.

The central bank’s notification on January 1, 2018 restricted currency dealers to import only 35% worth of US dollars against the value of export of other currencies via air travel. The remaining 65% would be imported through proper banking channels, it was understood.

“Total import of cash US dollars shall not exceed 35% of total export of permissible foreign currencies during a month,” the notification said.

Earlier, dealers, who tend to travel with currencies other than the US dollar, exchange it for the dollar in other countries and bring back the greenback in Pakistan as import, were allowed to import 100% worth of US dollars against the export of other currencies such as Saudi Riyal and Euros to Dubai.

“The supply has straightaway dropped by 65% (due to the January 1 order),” Exchange Companies Association of Pakistan General Secretary Zafar Paracha added.

The restriction to go through the banking channel has impacted supply. “Banks usually take 4-5 days to supply the imported dollar to us compared to when we import it ourselves,” he said.

“The dollar price shot to an intraday high of Rs113.50 on Monday (January 8) from around Rs111 (the closing rate on Monday) due to short supplies of the greenback amid banks’ closure from Friday evening to Monday morning,” he said.

SBP Deputy Governor Jameel Ahmad verbally withdrew the January 1 notification and assured currency dealers at an afternoon meeting on Tuesday to issue a new circular to restore the previous regime, said dealers.

“Dealers import around $6-7 million every day (considering 100% imports),” Forex Association of Pakistan President Malik Bostan told The Express Tribune.

“Almost half the daily need in the open markets is met through the imports,” he said, adding that the remaining is met through remittances sent by Pakistani workers abroad and purchase of dollars from sellers at over 1,200 retail counters across the country.

Under the provided mechanism, currency dealers are allowed to export surplus currencies (other than the dollar) mostly to Dubai under tight monitoring of the central bank and Customs department from Karachi, Lahore and Islamabad airports. However, currency dealers are allowed to import dollars only at the Karachi and Lahore airports.

Dealers said the demand for dollars has picked up in the open markets since the central bank allowed the rupee to fall by around 5% to Rs110.64 in December.

However, analysts believe there is more room for rupee weakening, suggesting a rate around Rs120 to the US dollar by June 2018.

Published in The Express Tribune, January 10^th, 2018.

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