The Pakistani rupee saw significant gains against the U.S. dollar in the open market on Thursday, with experts and observers linking the surprising development to a State Bank of Pakistan (SBP) directive allowing banks to avail the interbank rate to settle international credit card payments.
In recent weeks, the gap between the open market and interbank rates had once again started to widen, prompting the International Monetary Fund (IMF) to demand “rationalization” and a return to a market-determined exchange rate. Prior to the announcement of the SBP policy—which came into effect on June 1 and will expire on July 31—the open market rate for the dollar stood at roughly Rs. 315 compared to the interbank rate of Rs. 285; after the announcement, the open market dropped to Rs. 288, narrowing the gap with the interbank rates.
Speaking with Geo News, Exchange Companies Association of Pakistan (ECAP) Chairman Malik Bostan explicitly linked the decline to the SBP policy, adding this was to the credit of Finance Minister Ishaq Dar and SBP Governor Jameel Ahmad. Explaining that earlier commercial banks were relying on dollars from the open market to settle credit card payments, which came at a hefty cost, he said the new policy would facilitate both consumers and the country as a whole.
On the time limit of the policy, Bostan claimed to Geo News that this was a “testing period” and if proven successful in the long-term it could be expanded.
The rationalization of the interbank and open market rates is also believed to facilitate the use of formal banking channels for remittances, as higher exchange rates in the open market had pushed many overseas Pakistanis to prefer the informal hundi/hawala networks to get the maximum benefit.
“It has been decided to allow authorized dealers to purchase U.S. dollars from interbank for settlement of card-based cross-border transactions with IPS [International Payment System],” read the SBP circular. This marks a shift in policy after 17 years and comes less than a year after Dar alleged that banks were hoarding dollars for financial gain at the expense of the national interest. “The SBP made the right decision at the right time,” said ECAP General Secretary Zafar Paracha in a statement. “It will bring down the open market dollar rate up to Rs. 20-25. It will also help to narrow the huge gap between the interbank and the open market,” he added.