SBP offers cash dollars to forex firms to arrest rupee fall

KARACHI: The State Bank of Pakistan (SBP) on Tuesday held a meeting with foreign exchange firms in an attempt to keep open market dollar rates under control as the central bank also offered cash dollar from its reserves to meet actual demand of greenback, a statement said.

The rupee is under pressure for a while and the rate of the dollar surges against the local currency in the open market on high demand from importers. But, the central bank has been resisting devaluation, keeping the rupee strong at 104 levels against the dollar, while in the open market it jumped above 109 per dollar in November 2016. Since then the local currency has been hovering around 108 levels. A post meeting statement by the Forex Association of Pakistan said the central bank offered cash dollars to exchange companies to curb the shortages in the kerb market.

Ashraf Wathra, governor SBP said a sizable amount of dollars is available with the central bank. “If commercial banks are not supplying the US currency to the forex companies then they can take it directly from the SBP according to their genuine needs,” Wathra was quoted as saying in the statement. 

“We have adequate supply of foreign exchange to meet the needs of the various stakeholders, including money changers … The forex companies can approach the central bank.”

The statement said the meeting discussed issues related to prevailing exchange rate and widening gap between the interbank and kerb market rates.  Wathra emphasised that there is no shortages of dollars in the country and ample quantity of the US currency is available “which are sufficient to fulfill all requirements of foreign exchange.”

The governor urged the forex exchange firms to help the central bank strengthen the national currency.

“…. the difference between open and interbank market rates has hit Rs4 per dollar… we expect that the exchange companies will again bring the rate down like they did in the past,” he added.

The SBP also hinted at withdrawing the condition of surrendering 10 percent of the total import of the dollars in the interbank market on those currencies, which are exporting through exchange companies.   

“This potential move could provide relief to the exchange companies and improve dollar supplies in the open market,” said Zafar Paracha, general secretary at Exchange Companies Association of Pakistan (ECAP).  

“Presently, the routine operations of foreign exchange companies require them to surrender the 10 percent of dollar imports and eventually sell (them) into the official market.”

Malik Bostan, the president of Forex Association of Pakistan, told the SBP chief that the supply of foreign currency has decreased owing to a number of factors. “After a Senate resolution seeking withdrawal of high denomination Rs5,000 currency notes in order to curb the flow of black money on the lines of India’s demonetisation drive, people got panicked and started buying dollars, which catapulted the demand up to $10 million per day,” Bostan said.

He added the exchange companies, currently, cannot come up with more than $5-6 million per day — the workers’ remittances and available cash combined — due to which the greenback is growing stronger every day.  

“The commercial banks are also not providing us with dollars in cash, which has led to the physical shortage of the US currency,” Bostan said.