April 26, 2008	Saturday	Rabi-us-Sani 19, 1429

KARACHI, April 25: Weightlessness of rupee finally invoked the heavy hand of the central bank which tightened rope around the currency dealers with strict conditions and promised to provide dollars for stabilising the rupee-dollar parity in the open market.

The State Bank of Pakistan on Friday called an emergency meeting of the representatives of the moneychangers to discuss the options for stabilising the rupee and asked them to remain within the limit being set by it.

The moneychangers were told not to earn more than 40 paisa per dollar higher than the inter-bank rate. Currently, the difference reached over Rs1.40 to Rs2 per dollar.

The SBP assured the money changers that it would provide $250,000 to the each licensed money changer.

“We have also been assured that the banks will also provide cash dollars in return of TT (telegraphic transfers) of remittances,” said Malik Bostan, president of Forex Association of Pakistan.

He estimated that $10 to 15 million would come through this channel daily in the open market. “These inflows will eliminate the shortage of dollars,” he said.

The central bank did not provide the details of the meeting with the money changers; however, currency dealers said that the SBP would provide $250,000 to the each licensed money changers, which are in ‘A’ category.

These dollars will be provided for two weeks at the rate of Rs64.5 and within or after two weeks the dollars will be taken back by the SBP at the same rate. The State Bank has been practising the same swap mechanism in the inter-bank market but it does not work there any more.

The ‘A’ category money changers are just 20 in number, while about 150 ‘B’ category money changers, who buy and sell dollars, not allowed to export currencies, will not be able to avail this SBP’s facility.

The money changers said they (the B category one) will get dollars from ‘A’ category money changers as they would have sufficient cash flows.

The dollar has been gaining fast against the rupee for the last couple of months and the SBP apparently failed to stabilise the inter-bank market, which in turn destabilised the open market.

The open market witnessed free fall of rupee against the greenback and reached Rs66.80 on Thursday. The news about the possibility of State Bank’s intervention supported the rupee and it gained Re1 against the dollar to stay at Rs65.80 on Friday.

“If the supply of dollars starts from Saturday, the rupee will gain immediately and may settle around Rs65 on Saturday,” said Mr Bostan.

Money changers said that the availability of dollars at the counters would automatically eliminate the ‘unreasonable’ buying of dollars and give confidence to those running after the greenback.

“The psychological impact of the dollars supply will certainly help the fast weakening rupee to get some strength and also reassure the panicky elements that enough dollars are available,” said a currency dealer attached with a large local bank.

He said if the market remained instable even after two weeks, the SBP may again use the same swap practice to keep the currency market liquid and allow the money changers to use the same amount for another one or two weeks.