KARACHI: The State Bank of Pakistan has attached forward cover booking with letters of credit against imports to check the increasing dollar demand.

Bankers said the there would be no forward cover on contracts which would help curb speculation in the currency market.“Maturity of forward contracts against import should coincide with the maturity of the underlying Letter of Credit (L/C),” said a circular issued by the State Bank on Wednesday.

In cases where the import Letters of Credit have a tenor of more than 12 months, the tenor of the forward cover facility would be 12-months on rollover basis or the remaining tenor of the L/C whichever is less; subject to the condition that the tenor of the forward cover should not be for less than one month, said the circular.

The forward cover was restored last year when the dollar reserves touched record figure and inflows were higher which helped exchange rate remain stable during FY-11.

With the beginning of new fiscal year, the exchange rate started shaking and now the local currency has lost about 4 per cent in the last two months.

The dollar set new record as it appreciated to over Rs90 on Tuesday and now both, open market and inter-bank, are trading dollar above Rs90.

Currency experts said the new move of the State Bank would help reduce speculations as dollar is being traded in forward cover for six months at Rs4 plus current exchange rate.

The new SBP circular said the minimum tenor of forward cover against foreign private loans would be 12 months or remaining maturity of the underlying foreign private loan, whichever is lower.

In cases where underlying foreign loans have a tenor of more than 12-months, the tenor of the forward cover facility would be 12-months on rollover basis or the remaining tenor of the loan, whichever is less.

It said if terms of the Letter of Credit are amended to extend its tenor in accordance with the regulations, importers can rollover the forward cover on the original maturity date of the forward contract coinciding with new maturity of the underlying L/C.“All forward contracts against which the underlying L/Cs are cancelled are required to be closed out on maturity at prevailing exchange rates and differential is settled between the importer and the bank,” said the circular.

Forward cover already provided to customers prior to the effective date of the circular would remain effective till their maturity.

Any rollover of the said contract would, however, be in accordance with revised instructions.

“Banks will ensure that the facility is being availed for genuine transactions and that customers do not hedge more than the underlying exposure,” said the State Bank.