After the Exchange Companies Association of Pakistan (ECAP) announced an intent to remove an unofficial cap on the exchange rate on Tuesday night, the rupee depreciated against the dollar in the open market, though a gap between the interbank and open market rates persists.
In a notice issued by ECAP, the market opened with the dollar trading at Rs. 243, against yesterday’s close of Rs. 240.75. Its interbank rate, meanwhile, was recorded at Rs. 231.5. While earlier reports had suggested the exchange companies would set the rate for buying dollars at Rs. 253 and selling them at Rs. 255, ECAP General Secretary Zafar Paracha said a committee would decide the rate in the open market during a meeting later in the day. He also confirmed that the State Bank of Pakistan (SBP) had accepted all of ECAP’s demands, including removing the cap.
The move by exchange companies, per both Paracha and ECAP Chairman Malik Bostan, is aimed at preventing speculation and bringing the exchange rate between the rupee and U.S. dollar to its “actual” rate so a burgeoning ‘grey market’ could be abolished.
In a statement, Bostan stressed that the decision to cap the dollar rate had proven “negative” and had actually increased the value of the dollar instead of reducing it. This, he said, had caused a shortage of the dollar in the open market and resulted in a grey market for citizens needing dollars for travelling or funding their education and health expenses.
“The dollar rate will begin decreasing once the grey market stops operating,” he claimed. “I would like to tell the nation that exchange companies aren’t able to get dollars from anywhere which is causing the shortage,” he added.
A key concern remains, however, of the gap between the open market and interbank rates, which is facilitating remittances through informal channels, bypassing banks and further impacting the country’s declining foreign exchange reserves. Currency experts claim that government is “managing” the official exchange rate, which the International Monetary Fund (IMF) has also cited as a stumbling block to the revival of a stalled bailout program.