In an apparent move to address IMF’s concerns that the government is controlling rupee-dollar exchange rate, Pakistan’s central bank has allowed commercial banks to purchase US dollars from the inter-bank market to settle international payments done through credit cards by their clients.
Talking to The Express Tribune, Exchange Companies Association of Pakistan General Secretary Zafar Paracha said that the central bank’s move was aimed at narrowing the gap between exchange rates in inter-bank and open markets.
The gap would contract by Rs20-25 over the next couple of days, he projected. “It will immediately shrink by Rs15-20 on Thursday (June 1).”
The spread widened to a record Rs27 owing to a sharp depreciation by around Rs20 in the past 10 days to an all-time low at Rs312/$ in the open market.
On the other hand, the exchange rate in the inter-bank market remained stable around Rs285/$ over the past couple of weeks.
The widening spread signaled that the actual rupee value was the one prevailing in the open market. This led the IMF to recommend the government to “focus on restoration of proper foreign exchange market functioning.”
An expert said the other day that the IMF wanted to see almost a similar exchange rate in all currency markets in the country.
The rupee dropped 0.04%, or Rs0.12, to Rs285.47 against the dollar in the inter-bank market on Wednesday.
In the open market, however, the currency recovered 0.32%, or Re1, to Rs311/$. “The nominal correction in the open market has nothing to do with the SBP notification, as it was issued after closure of the market,” Paracha elaborated.
He said that the rupee would remain under pressure in the inter-bank market till the IMF programme was revived and friendly countries announced new loan packages.
The State Bank of Pakistan’s (SBP) notice circulating in the market read “in view of the representation received from stakeholders, it has been decided to allow authorised dealers (commercial banks) to purchase US dollars from inter-bank for settlement of card-based cross-border transactions with IPS (international payment schemes).”
“These instructions are applicable with immediate effect till July 31, 2023 unless otherwise notified.”
Published in The Express Tribune, June 1st, 2023.
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