KARACHI: The rupee depreciated for the second session on Tuesday, falling by 0.48 per cent against the dollar to close at Rs307.10 in the interbank market, the central bank reported. However, after a crackdown on illegal money changers in Peshawar, the open market reacted differently and saw the dollar losing up to Rs7.

The rupee weakened in the interbank market despite assurances given by the interim government about a large amount of $70 billion investment from friendly countries. The currency market did not consider the assurances seriously and reacted according to the demand and supply of dollars.

The currency dealers said the demand for dollars remained high, while the banks said the importers’ rush to open letters of credit was on the rise.

The banks can open LCs for imports but are bound to arrange dollars before that. This condition has restricted imports, though they are still higher than last year, as reflected by the higher import bills in July and August.

Experts attribute shift in market sentiment to action against unlicensed currency dealers

However, the open market surprised currency experts, as the dollar fell by Rs5 to Rs7 on Tuesday.

The Exchange Companies Association of Pakistan (ECAP) reported the closing dollar rate at Rs323 compared to Rs328 on Monday. The Forex Association of Pakistan reported the closing price of the dollar at Rs320 compared to RsRs327 on Monday.

Currency experts said a crackdown against two known but unlicensed currency dealers in Peshawar changed the market sentiment, although two currency operators escaped successfully.

“This is a clear message from the government to bring down dollar rates in the open market and stop smuggling,” said Zafar Paracha, ECAP’s general secretary. He said the immediate impact was that there was no buying and selling in the grey market, while the open market also witnessed thin trading.

The grey market cost heavily to the country as the remittances fell by $4.2bn and export proceeds shrank by $4bn in the previous fiscal year.

The grey market was offering the dollar at Rs15 to Rs20 higher than the exchange companies’ prices, attracting sellers in droves. The grey market is also responsible for the smuggling of dollars from Pakistan to Afghanistan and Iran, while the shortage of dollars in the open market is due to the presence of the grey market.

The caretaker government is under pressure from the International Monetary Fund to bring down the difference of dollar rates to 1.25pc while recently it went up to as high as 9pc. The difference is still above 5pc.

Currency dealers said the rates quoted by the ECAP were the actual rate, and dollars were available at the same price on Tuesday. Earlier, the dollars were unavailable at the quoted rates of the representative organisations of the exchange companies.

The Federal Investigation Agency is closely monitoring the exchange companies, and several exchange companies have lost their licences due to violations of the rules for the business set by the State Bank of Pakistan.

Published in Dawn, September 6th, 2023