KARACHI, May 20: The spread between official and open currency market exchange rates has widened to 100 paisa. If not checked immediately it will cause the official inflow of remittances from overseas Pakistanis to fall.
On Thursday the rupee closed at 57.75 a US dollar in the inter-bank market though it saw higher levels in intra-day trade and at 58.75 a dollar in the open currency market. So the difference between the two exchange rates widened to 100 paisa per dollar.
At the end of last month the gap was only 40 paisa with the rupee trading at 57.45 in the inter-bank market and at 58.05 in the open market. This means the spread between the two exchange rates has risen by 60 paisa within 20 days of this month.
"A 100 paisa wedge between official and open market exchange rates is bound to shift part of workers' remittances from the official channels to hundi or hawala," admitted a senior central banker who refused to be identified.
Official flows of workers' remittances or the foreign exchange sent back home by overseas Pakistanis through banking system went up by nine per cent to $335 million last month.
A key reason for this was that the spread between dollar-rupee exchange rates in official and open currency market was well within the range of 50-60 paisa. "This range is sustainable," says Munaf Kalia who is secretary general of Exchange Companies Association of Pakistan.
This means if the dollar sells for 50-60 paisa higher in the open market it does not provide enough incentive to overseas Pakistanis to shift their remittances from inter-bank market to hundi/hawala.
But if the gap increases it adversely impacts on the flow of workers remittances through banking channels. Heads of exchange companies admit that a 100 paisa gap between official and open market dollar-rupee exchange rates is just too high.
Market sources said that heads of all exchange companies decided at a meeting held at the NBP Exchange Company on Thursday to sell a huge amount of dollars next week to prop up the rupee.
The sources said all 12 exchange companies took the decision to intervene in the market next week after concluding that the recent dollar buying was speculation-driven and that the money changers had a hand in it. The decision was taken at a meeting of exchange companies at NBP Exchange Company.
The State Bank has set June 30 as deadline for money changers to transform their outlets into exchange companies or seek franchise with the existing ones. Heads of exchange companies say that by promoting speculative dollar buying money changers are trying to create difficulties for the central bank.
But money changers refused this allegation. Says Haneef Gohar who heads the Karachi Chapter of Money Changers Action Committee. Executives of exchange companies including Mr Munaf Kalia say there are several reasons for the recent skyrocketing of dollar in the open market.
These include (i) an increase in the inter- bank rate (ii) heavy dollar buying of gold importers from money changers and (iii) the trend to switch investment from real estate and stocks to hard currency, etc. The rupee has shed 30 paisa to a US dollar in the inter-bank market so far during this month.