Currency dealers remove cap on dollar-rupee exchange rate

The currency dealers have unanimously decided to stop artificially keeping rupee overvalued against US dollar in open market and let the rupee-dollar exchange rate depreciate to its actual value.

Speculations suggest rupee could gradually devalue to the level of black currency market in a couple of days.

The domestic currency was available at Rs250-260 per US dollar in black market these days while the dealers had artificially maintained rupee-dollar exchange at Rs238 till Tuesday.

"The association has decided to remove cap on rupee-dollar exchange rate," Exchange Companies Association of Pakistan (ECAP) President Malik Bostan said in audio and video messages after chairing a zoom meeting on Tuesday.

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"The move would help eliminate black currency markets, increase flow of foreign currencies to the dealers and available to public (for international travelling, education and hospital fees and etc."

He said dealers had voluntarily decided to cap the exchange-rate in the national interest. The decision, however, resulted in black currency market that appeared more damaging to the nation.

"People were buying dollars from open market (at Rs238) and selling in black market (at Rs250-260), making it a business to mint profit," he said, adding no one was coming to the dealers' counters to sell foreign currency which resulted into drying up supplies on the other hand.

ECAP General Secretary Zafar Paracha said the decision to remove cap on the exchange-rate would help eliminating the black market and bring back the foreign currency inflows into the formal system from illegal one.

In addition, the International Monetary Fund (IMF) has demanded of the government to end its control over rupee-dollar exchange rate in interbank market and let market forces determine the rate considering demand and supply of US dollars in the system.

The local currency in interbank market stands at around Rs230.

The government has accepted the IMF condition.

Accordingly, the domestic currency is projected to reach at Rs250-260 against US dollar in inter-bank market as well.

Technically, Pakistan is running three currency markets including interbank, open and black currency markets. Accordingly, all the three markets are offering different rates.

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The black currency market apparently came into being after Finance Minister Ishaq Dar tried to keep the currency artificially overvalued at Rs180-200 to US dollar after returning to the ministry in late September 2022. The currency, therefore, appreciated to Rs218 in early days of October from all-time low hit at Rs240 first time in late July 2022 and last time in September 2022.

Dar blamed that market forces (mostly the commercial banks) had artificially undervalued rupee to Rs240/$ and initiate a probe against them.

State Bank of Pakistan (SBP) Governor Jameel Ahmed said on Monday the central bank has completed investigation against 13 commercial banks allegedly involved in rupee-dollar parity manipulation.

"The central bank is all set to take action against them in days (instead weeks and months). The action could be fiscal or regulatory one," he added.