• No more ‘premiums’ on dollar sale
• Bankers say ‘artificial rates’ could encourage ‘blackmarketing’ of foreign currency

KARACHI: Banks and exchange companies are facing mounting pressure to lower the dollar rate below prevailing market levels, according to sources in the financial sector.

An important meeting in Islamabad on Monday, involving senior officials from the State Bank of Pakistan (SBP), the Ministry of Finance, and bankers, discussed measures to stabilise the exchange rate and reduce the dollar’s price.

However, some bankers expressed reservations, noting that the government’s desired exchange rate does not reflect natural market conditions. “There is no clarity on the specific dollar rate the government wants, but the directive is clear — keep it low,” said a banking source.

Banks have reportedly been advised to sell dollars to importers at reduced rates, while exporters have been told not to demand premiums on their foreign exchange proceeds. The SBP has been in active contact with commercial banks over the past week, urging them to maintain low dollar rates regardless of underlying demand and supply pressures.

Market participants said demand for dollars remains high due to ongoing shortages, although the SBP and banks have not officially acknowledged this. Importers struggling to open letters of credit (LCs) claim that banks are charging up to Rs2.50 per dollar above quoted rates. Some bankers also revealed that the SBP appears determined to bring the rate further down “at any cost”.

A recent crackdown on dollar smuggling to Afghanistan and Iran — launched on July 23 — has helped cool the market. The interbank rate declined by Rs1.39 over three working days, while exchange companies reported a drop of Rs1.175 in the open market.

Despite this, concerns remain. Bankers warn that artificially suppressing the dollar could backfire by pushing demand into the informal market, as witnessed two years ago. “Going against market fundamentals risks creating an illegal parallel market that would be far more damaging,” said one banker.

A currency expert suggested the dollar could trade at Rs280 soon, though no justification was offered. He noted that the SBP’s aggressive dollar buying has contributed to the shortage, with about $9bn purchased in FY25. The central bank continues its buying activity in the current fiscal year as well.

The financial sector is also closely watching developments around the Pakistan Remittance Initiative (PRI) — a joint effort by the SBP, the Ministry of Overseas Pakistanis, and the Ministry of Finance.

The government has allocated Rs86bn in incentives for banks in FY26, but following criticism of profiteering, it is considering cuts to these payments. Banks have pushed back, warning that such a move could hurt remittance flows, which reached a record $38.3bn in FY25.

Published in Dawn, July 29th, 2025