The rupee depreciated against the dollar on Wednesday after the Exchange Companies Association of Pakistan (Ecap) removed an unofficial cap on the exchange rate.

According to Ecap, the USD was being traded at Rs243 in the open market at 4:35pm, falling 0.93 per cent from yesterday’s close of 240.75. It closed at Rs230.89 in the interbank market.

Separately, Ecap General Secretary Zafar Paracha said talks between State Bank of Pakistan (SBP) Deputy Governor Inayat Hussain and Ecap representatives were successful. “The State Bank accepted all our demands including removing the cap.”

Paracha said the SBP further directed commercial banks to supply dollars to exchange companies. He vowed to bring the USD-PKR exchange rate in the open market to the ‘actual’ rate so the grey market could be abolished.

Speaking to Dawn.com later in the day, Paracha acknowledged that even after removing the cap, the rate being offered in the open market was far lower than the grey market. He added, however, that the association would raise rates gradually.

The Ecap general secretary said exchange companies were currently selling dollars only to “genuine buyers”, travellers and those who required the greenback for education and medical-related payments.

“The dollar supply is very limited. Banks do not have dollars either. [During our meeting], the SBP deputy governor assured us … and directed banks to keep a large amount of dollars so [exchange companies] can buy from them, the supply line is fixed and the grey market shrinks,” Paracha added.

The exchange rate has been primarily hit hard by a steep decline in the central bank’s foreign exchange reserves, which have shrunk to $4.6 billion. Currency experts say the rupee has been falling “despite being managed” by the SBP.

Amid a shortage of dollars, the gap between its rates in the interbank and open markets has significantly widened, drastically hurting the economy and diverting remittances from the legal banking channel to the grey market.

Some experts have hinted that the shortage of dollars could cause rationing of petrol and diesel in the next two to three months, ultimately hitting trade and industry and even the agricultural sector, which needs diesel during the harvesting season.

On Tuesday, Ecap Chairman Malik Bostan issued a statement after a meeting of the association, saying that the decision to cap the dollar rate had proved to be “negative”.

“Instead of falling, the dollar rate increased, resulting in the unavailability of the greenback in the market which also gave birth to the grey market.”

He further lamented that citizens who wished to buy dollars for travelling or funding their education and health expenses were not able to do so and had to turn to the grey market.

He further said, “The dollar rate will begin decreasing once the grey market stops operating. I would like to tell the nation that exchange companies aren’t able to get dollars from anywhere which is causing the shortage.”