Rs118.30/dollar: SBP warns speculators as rupee hits all-time low in open market

KARACHI: The central bank on Monday warned dealers against betting on depreciation of rupee, asking them to strengthen the embattled local currency as ample liquidity is available in the open market to meet foreign exchange demand.

Executive Director Banking Policy at the State Bank of Pakistan (SBP) Syed Irfan Ali advised people “to refrain from the speculations/rumours and to avoid the unnecessary purchasing of US dollar otherwise they will bear loss”.

Ali held an urgent meeting with the officials of the exchange companies and expressed concerns over increasing rates of US dollar against rupee in the kerb market, Exchange Companies Association of Pakistan (ECAP) said.

“There is no justification for such an increase,” Ali was quoted as saying in an ECAP’s statement. “There is no shortage of USD and the supplies of cash USD are available in any quantity with SBP and exchange companies.”

Rupee slumped to an all-time low of 118.30 against the dollar in the open market on Monday, surging the gap between the official and kerb market’s rates to Rs2.69/dollar. Rupee fell to a record low of 117.70 to the dollar in previous session. Rupee, however, closed steady at 115.61/dollar in the interbank market.

General Secretary Zafar Paracha at ECAP told the SBP that the rate of the US currency would come down. He also assured the central bank’s official of the regular supply of the greenback. Currency dealers said the rupee remained under pressure fuelled by shortage of the greenback in the market.

“There has been a huge demand for buying dollars at higher prices,” a dealer said. “Investment of undeclared money in the US currency and switching of investment from real estate sector to currency market after the announcement of the amnesty schemes are the factors behind the steep fall in the rupee in the open market.”

Early this month, government announced tax amnesty scheme, which would expire by June, to give residents one-off tax benefits for repatriating undeclared local liquid assets with a five percent penalty, undeclared foreign liquid assets with a two percent penalty (if repatriated, or a five percent penalty if remaining abroad or in foreign currencies), and undeclared fixed assets – whether held locally or abroad – with a three percent penalty. Non-filers of tax returns are not able to purchase any property of value greater than four million rupees under a new law.

Several investors are switching their savings into dollars on expectations of further depreciation in the exchange rate, another dealer said requesting anonymity.

Rupee has lost around 10 percent against dollar since December last year. The devaluation was a calculated move by the government to refill depleting foreign inflows and reduce widening current account deficit that reached to five percent of GDP or $12.029 billion in the July-March period.

Government estimated current account deficit for the outgoing fiscal year at 4.4 percent or $13.7 billion, while it set an ambitious target of 3.8 percent or $12.5 billion for the next fiscal year. Analysts believed that government needs another bailout package to avert balance of payments crisis.

SBP frequently asked the representatives of the exchange companies to bring down the dollar rate to reduce the gap between the rate of open and interbank markets to just one percent. Currently, the gap is more than two percent.

Dealers said the increasing spread between interbank and open markets is expected to reduce the formal remittance flows to Pakistan. “This could encourage the use of hundi and hawala,” a dealer said. Remittances from Pakistani workers abroad rose 3.55 percent to $14.606 billion in the nine months of the current fiscal year.