Rupee’s recovery closes rate gap

KARACHI:

The rupee on Thursday continued to soar against the US dollar as a crackdown on the informal currency market started to pay dividends, helping the gap between the interbank and open-market rates to meet the International Monetary Fund’s (IMF) target of 1.25 per cent.

And for the first time in the last one year, the rupee catapulted to much higher price in the open market, outpacing the rate offered in the interbank. It was trading in the bandwidth of Rs302-305 vs the US dollar.

The domestic currency made the first meaningful recovery of 0.67% or Rs2.04 in the interbank to settle at Rs304.94 against the US dollar, according to the State Bank of Pakistan's data.

Thus, the dollar-rate gap between the two markets has now shrunk to zero.

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Forex Association of Pakistan (FAP) President Malik Bostan told The Express Tribune that the currency improved to Rs302-305/$ in the open market during the day that was better compared to around Rs305/$ in the interbank market, "suggesting the crackdown has started to bear fruit".

With such developments, the difference between the exchange rates in the interbank and open markets declined to zero compared to Rs30 (almost 7%) a few days ago, he said.

To recall, under a $3 billion loan programme agreed in July to avert a default on Pakistan’s sovereign debt, the International Monetary Fund had told authorities concerned to limit the premium between the rupee’s interbank and open market rates to 1.25 per cent over any given five business days.

The Exchange Companies Association of Pakistan (ECAP) reported that the currency has recovered 1.63% or Rs5 in the open market and closed at Rs307/$. With this, the currency has regained slightly less than 7% or Rs21 in the past three-days to date from all-time low hit at Rs328/$.

Individual currency dealers in the open market had reported the price of the local currency had spiked to Rs340/$ due to smuggling of foreign currencies to Afghanistan.

"The credit for the smart recovery of the Pakistani rupee goes to the army chief as he forms a task force and orders a crackdown against the black market mafia."

The action helped reverting back the 100% supply of the US dollars to currency dealers in the open market. Earlier, 90% supply had diverted to illicit hawala-hundi operators, leaving only 10% with certified dealers.

He hoped Pakistan is set to receive multibillion-dollar investment in sectors of the economy planned through the formation of SIFC. The receipts would help build foreign exchange reserves and support the rupee against the greenback, he added.

A day earlier, the State Bank of Pakistan issued a circular unveiling a series of stringent measures aimed at reforming the currency exchange sector.

Currency exchange companies categorised as ‘B’ have been given a three-month ultimatum to either transform into full-fledged exchange firms or face the prospect of losing their licences.

The SBP's move came in response to concerns over the weak operational structure and inadequate compliance levels observed within category ‘B’ exchange companies.

The central bank has now advised both category ‘B’ firms and franchisees to either merge with established full-fledged entities or sell their businesses to stronger counterparts.

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Failing to comply with this directive within the stipulated three-month window will result in the automatic cancellation of licenses for standalone category ‘B’ firms.

In addition to this, the SBP has opened the door for leading banks to “establish wholly owned exchange companies to cater to the legitimate foreign exchange needs of the general public,” as outlined in the circular.

The SBP also mandated that exchange companies increased their paid-up capital to a minimum of Rs500 million (excluding losses) by December 31, 2023, up from the current minimum requirement of Rs200 million.

Gold down

Taking cues from the uptrend in the open market, the gold pricing body revised down the commodity price by Rs5,800 to Rs216,500 per tola (11.66 gram) in Pakistan.

The pricing body reduced the gold price cumulatively by almost 10%, or Rs23,800, in the past five consecutive working days to date. The drop was partially seen in the wake of downturn in the commodity price in global markets as well.