KARACHI: Signs of panic are now appearing in foreign currency markets as the dollar touched Rs148 in open trading on Friday and the information minister announced that “a full-fledged operation against dollar hoarding and speculative currency trade” is going to be launched. Meanwhile, the finance minister issued a renewed assurance that the “rupee is in equilibrium” and “there is no reason for big devaluations”.

The open market has been shrugging off the government’s assurances for a long time. On Friday, the State Bank held its third meeting in five days with the heads of exchange companies to find ways of bringing the open market rate under control. Like the previous such meetings, this one too appeared to have ended inconclusively.

Following the meeting, Forex Association of Pakistan president Malik Bostan told Dawn that it had been decided that only genuine buyers could buy dollars from the open market. However, he said there was no discussion about any impending crackdown or law enforcement action of any sort.

Dealers say exchange rate hits Rs148 amid shortages

The meeting focused on the supply of dollars in the open market and appropriate rates for selling. However, the State Bank did not extend its offer to provide dollars to meet its shortage in the market, he said.

Mr Bostan described “genuine buyers” as “travellers, students, pilgrims and people who need foreign exchange for health purposes”. When asked how they will determine whether a buyer is genuine or not, he said: “We will check their documents.”

As the meeting at the State Bank was under way, Finance Minister Asad Umar was busy trying to assuage sentiments in another section of the financial markets. In a video call to brokers at the Pakistan Stock Exchange, he did his best to rule out further devaluation.

Highly placed sources told Dawn that a meeting was held in Islamabad on Friday to specifically discuss the exchange rate. According to them, the meeting, chaired by the finance minister, decided to launch a crackdown on currency hoarders and speculators. “Verbal directives were issued by the interior secretary who directed the FIA (Federal Investigation Agency) to consult deputy governor of the State Bank for this crackdown,” the sources added.

Later, Information Minister Fawad Chaudhry took to the social networking website to announce the decision in a tweet riddled with typos. “Government has directed FIA to launch a full fledged operation against Dollar hoarding, and speculative currency trade the operation is being launched in coordination with State Bank and ministry of Finance,” he wrote. In less than four hours, the tweet had been liked by more than 5,100 people and re-tweeted on by 1,100 others and a lively exchange ensued in its replies.

The State Bank told Dawn later in the evening that it was unaware of any decision about a crackdown. When its spokesman’s attention was drawn to the information minister’s tweet, he only said that “we have not been officially approached” for initiating any crackdown.

He added that there was no law to arrest any person for buying dollars or keeping foreign exchange as investment, but if any institution was found involved in currency hoarding to manipulate the exchange rate, it could be investigated. “We have a mechanism with FIA to probe a case if there is any violation of banking laws and the State Bank can ask FIA to investigate such violations.”

On the street, exchange companies were quoting selling rates of Rs143 to a dollar, mainly because of the pressure from the State Bank, but these were not applicable in the market, according to currency traders.

A top currency dealer, with one of the largest networks in the country, said the dollar was sold as high as Rs148, while he was buying it at Rs146.50. People who sought to buy at the officially quoted rate were told there were no dollars available.

Malik Bostan said the foreign currency market today was dominated by buyers, meaning people trying to buy dollars.

Exchange Companies Association of Pakistan secretary general Zafar Paracha agreed. “Sellers are just 25 per cent of the current dollar trading that means 75pc are buyers, which has drastically reduced the volume of the market,” he claimed. He attributed this to various causes, including the continuing expectation of rupee devaluation and approaching Ramazan.

“During the holy month of fasting, more people travel to Saudi Arabia than in the rest of the year combined,” Mr Bostan said, adding that this month saw a spike in foreign exchange purchases from the open market. After this, comes the Haj season when a second spike is expected.

Asked if he is afraid of a crackdown by the FIA, Mr Bostan said: “We have done nothing wrong, why we should have any fear?” He was adamant that exchange companies were faced with a genuine shortage and were not involved in hoarding the greenback.

Published in Dawn, April 6th, 2019