KARACHI: The State Bank of Pakistan (SBP) has assured currency dealers that the exchange rate will remain stable at the current level in the interbank market and urged them to bring it down in the open market to not more than one per cent above the interbank rate.

In a meeting with currency dealers on Wednesday, the SBP pressed them to bring down the dollar price as soon as possible. Both the government and SBP claim that the exchange rate is determined by the market in spite of the harsh reaction from the finance minister to the recent deprecation of the rupee.

Currency dealers told the SBP that the sudden fall of the rupee’s value by 3.1 per cent against the dollar on July 5 shattered market confidence. “The market needs time to cool down after the shock of depreciation, which was supported by the International Monetary Fund (IMF) and also owned initially by the SBP,” Malik Bostan, who represented currency dealers as president of the Forex Association of Pakistan, told Dawn.

After the depreciation of 3.1pc in the rupee’s value, the IMF stated that the currency was overvalued. This supported the view that the finance minister’s action to bring down the exchange rate in the interbank market was temporary. The SBP, which influences the banking currency market, paid no attention to the IMF’s view and forced banks to trade the dollar at the old rate.

Currently, the dollar is being traded at Rs105.20-30 in the interbank market. Its rate ranges from Rs107 to Rs107.30 in the open market. The difference of about Rs2 per dollar encourages speculation and, as a result, the illegal currency business flourishes.

Currency dealers said the inward remittance against the export of currencies other than the dollar dropped drastically in June to $79 million mainly because of Haj. Each person generally needs about $1,000 for Haj. They buy mostly Saudi riyals from the open market. Saudi riyals are included in the basket of currencies, which is exported to Dubai to buy dollars for the import into Pakistan. The import of dollars was $120m in May and $171m in April.

Mr Bostan said that about $225m will be required for 225,000 Hajis this year. About 100,000 Pakistanis will perform Haj on the state quota for which the government had been providing traveller’s cheques of $1,000 each. The practice stopped in 2016 and now these Hajis also buy riyals (equivalent to $1,000) from the open market. The open market is facing a shortage of the greenback as its demand is higher than supply.

Published in Dawn, July 20th, 2017