KARACHI: The rupee dipped by 1.2 per cent to 243 against the dollar on Wednesday after foreign exchange companies lifted a price cap, which they said caused “artificial” distortions and created a black market, where the US currency was selling at higher rates.

However, the rupee’s closing value was far higher compared to Rs252.5 in the early open-market trade on Wednesday after central bank’s intervention. On Tuesday, the dollar sold at Rs240.75 in the open market.

The Exchange Companies Association of Pakistan (ECAP) said on Tuesday it was removing the cap on the currency and would meet State Bank of Pakistan’s (SBP) officials on Wednesday.

“We have decided that we will bring the exchange rate on a par with what we are supplying to the banks against credit cards,” ECAP Secretary General Zafar Paracha said in a statement, adding that the level is 255 to 256 rupees to the dollar.

Local currency closes at Rs243, up from Rs252.5 level seen when trading opened on Wednesday

However, within an hour of the implementation of the unprecedented decision by exchange firms on Wednesday, the SBP swung into action and crushed the move, forcing exchange companies to bring down the initial price of Rs252.5 to Rs243. In the interbank market, the rupee depreciated 0.21pc against the dollar to close at Rs230.89.

The rupee’s official value has depreciated 11.23pc against the dollar since the start of the 2022-23 fiscal year, which ends on June 30.

Before the cap on the rupee was removed, markets eyed three different rates to assess its value — the SBP’s official rate, the one assessed by the foreign exchange companies and the black market rate.

“We think the dollar rate in banks may fall by up to 5pc in few days,” Mohammed Sohail, chief executive officer at brokerage Topline Securities, told Reuters.

ECAP President Malik Bostan said the central bank had given an assurance at a meeting that commercial banks would be instructed to supply exchange companies with dollars within a week.

“We’re facing a shortage. We do not have physical dollars,” Mr Bostan said. “People aren’t selling dollars. They’re only buying.” He said removing the cap would help curb black market trade, though it would take time to bridge the gap.

“The black-market rate is still stickying in the range of 260-270. The decision of exchange companies has not had any impact as such,” said Fahad Rauf, head of research at Ismail Iqbal Securities.

Stock market investors responded positively to the decision to remove the currency cap, with the Pakistan Stock Ex­change’s benchmark index rising 1.77pc. Mr Sohail said investors hoped the removal of the cap would help persuade the IMF to resume disbursements.

Published in Dawn, January 26th, 2023