KARACHI: The State Bank of Pakistan (SBP) and the government have failed to bring any stability to the exchange rate as the US dollar continued its rally for the sixth successive session by adding another Rs2.76 to Rs228.18 in the interbank market on Friday.

The greenback appreciated by Re1 to Rs234 in the open market.

A meeting of the central bank with the exchange companies was held on Thursday to narrow the widening gap between interbank and open market dollar rates. However, the interbank remained unimpressed with any step taken to control the steep depreciation of the local currency.

Speaking to Dawn, a currency expert said the situation has reversed regarding the dollar. Earlier, the inter-bank rate was influencing the open market; now the open market has started influencing the inter-bank rate.

In search of looking for the reasons that pushed the dollar higher and higher each day, experts and dealers held the SBP and the government responsible for failure.

Currency market in a state of flux as dollar surges to 228.19

Currency experts said that the illegal hawala market has captured a major share of the exchange companies’ revenues; exchange companies are living without foreign currencies while the dollar is easily available in the grey market.

According to some currency dealers, the grey market is a good facilitator for clients because it allows them to deliver the required foreign currencies at home.

“The government should take stern action against the ballooning grey market which has replaced the exchange companies,” said Zafar Paracha, the general secretary of the Exchange Companies Association of Pakistan (ECAP).

“Just a few weeks back we were selling up to $20 million in the inter-bank market and now our sales are almost zero. Where the dollars have gone, it is the grey market which has captured the legal way of doing currency business,” he said.

Another reason for the higher dollar prices in the open market is that banks are buying dollars from the open market at higher prices for credit cards. He said banks can’t buy dollars from the inter-bank market for the purpose of credit cards.

The dollar rate in Karachi’s hawala market is Rs240, while it is Rs242 in Peshawar and Rs245 in Kabul. The Kabul rate has become very important as it influences the currency market in Pakistan. If the open market goes for a lower dollar price, the Kabul rate attracts dollars through smuggling.

Published in Dawn, September 10th, 2022