Cash imports of US dollars helps rupee recover
US dollar supplies have dropped to $10-15m per day to counters in open market compared to around $50m earlier. PHOTO: file
In a bid to bolster the domestic currency and alleviate the ongoing economic challenges, the State Bank of Pakistan (SBP) has taken a significant step by permitting currency dealers to import US dollars in cash form from abroad. This move has already shown positive results, as the domestic currency managed to partially recover by 0.52%, or Rs1.48, reaching Rs287.04 against the US dollar in the interbank market. This ended an eight-day long losing streak and provided much-needed relief to the struggling economy.
The SBP’s decision allows open market currency dealers to import 50% of US dollars in hard cash against the export of surplus foreign currencies (excluding US dollars) mainly to Dubai and Qatar. This measure is aimed at increasing the supply of US dollars in the open market and potentially overcoming the greenback’s shortage.
Under the new arrangement, the remaining 50% of US dollars can be imported through online transactions directly into the dealers’ bank accounts in Pakistan. The dealers can then sell these US dollars in the interbank market. Prior to this decision, currency dealers were importing 100% of US dollars through online channels into their bank accounts and surrendering the entire receipts in the interbank market.
The central bank’s notification lays out the framework for currency dealers to import cash US dollars against the value of their export consignments of permissible foreign currencies within five working days through reputable cargo/security companies. The scheme is initially set to be in place until December 31, 2023, with the condition that total cash US dollars imported by an exchange company during this period should not exceed 50% of the value of its export consignments.
The currency dealers and economic experts are optimistic about this move, believing that it will help strengthen the rupee in the open market and potentially narrow the difference in exchange rates between the interbank and open markets. Speaking to The Express Tribune, Exchange Companies Association of Pakistan (ECAP), General Secretary, Zafar Paracha highlighted that the difference between the two markets may reduce to Rs1-2 within a week.
The interbank market saw a cumulative depreciation of 4.17% or Rs12.06 in the domestic currency over the past eight consecutive working days, reaching a two-and-a-half-month low at Rs288.52/$ on Tuesday. However, the market rebounded as the local currency regained 0.51% or Rs1.50 to Rs292 against the greenback in the open market on Wednesday, narrowing the spread to almost Rs5.
While the recent move by the SBP has brought optimism, experts predict that the domestic currency may still depreciate to $290-300/$ in the interbank market by the end of December 2023 and further to Rs320-340/$ by the end of the current fiscal year on June 30, 2024. They advocate for gradual reopening of imports, import substitution, and increasing exports as vital strategies to reduce trade and current account deficits, build foreign exchange reserves, and strengthen the rupee against the greenback.
Additionally, experts emphasise that the government must address corruption and adopt austerity measures to block funds leakages and reduce expenditures, ultimately achieving self-reliance in the medium to long-run.
In related news, the gold pricing body has adjusted the commodity price by reducing it by Rs2,400 per tola (11.66 grams) to Rs222,100 in Pakistan on Wednesday. This contrasts with a surge in world markets, where the price increased by $12 per ounce (31.10 grams) to reach Rs1,972.
Published in The Express Tribune, July 27th, 2023.
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