Rupee dives to Rs312 per dollar in open market

The Exchange Companies Association of Pakistan (ECAP) has reported that the rupee dived almost 2%, or Rs6, to an all-time low at Rs312 against the US dollar in the open market on Wednesday, widening the difference as compared to the inter-bank exchange rate to a staggering 4%, or around Rs12.

In the inter-bank market, the currency resisted its fall to Rs300/$.

It, however, lost 0.21%, or Rs0.63, to a new historic low at Rs299.64 against the greenback.

The difference between exchange rates in the two markets has increased threefold to 4%, or Rs12, compared to the 1.25% (around Rs4) gap recommended by the International Monetary Fund (IMF), putting a question mark over the ongoing $3 billion loan programme.

Talking to The Express Tribune, ECAP General Secretary Zafar Paracha said the association had to announce a significant devaluation in the rupee’s value after waiting for a long time for US dollar supply from individual sellers, who did not turn up.

“Supplies have been diverted to the grey market… which is offering Rs20-25 more for each US dollar compared to Rs299.64/$ in the inter-bank market.” Paracha called the IMF’s condition of maintaining a 1.25% exchange rate difference illogical, saying that the nature of customers and the demand for dollars in the two markets were significantly different.

He noted that inter-bank was a big wholesale market meeting demand for billions of dollars from importers while retail was a small market, fulfilling needs of individuals running into thousands or millions of dollars.

“The IMF should reconsider its condition,” he argued.

Paracha suggested that the caretaker government and the central bank could eliminate the grey market through structural reforms and policymaking like “deregulating the open market”.

The dismantling of grey market can not only stabilise the rupee-dollar exchange rate in the inter-bank market but will also stop the rupee’s devaluation in retail.