Govt swings into action to check rupee freefall

KARACHI: The rupee closed 1.56 percent weaker in the open market on Wednesday – the fourth consecutive session fall – on apparent speculative buying that prompted the government to hold an unscheduled meeting to warn of strict action against dollar hoarding, sources said on Wednesday.

The sources said Prime Minister Imran Khan presided over a high-level meeting with a delegation of Exchange Companies Association of Pakistan (ECAP) comprising Sheikh Allaudin, Malik Bostan, and Sheikh Mureed in Islamabad.

Other participants of the meeting included director generals Federal Investigation Agency and Intelligence Bureau, Chairman Federal Board of Revenue and Governor State Bank of Pakistan (SBP).

“Government made it crystal clear that it will take strict action against exchange companies (if they are found in speculative trade),” a source privy to the meeting told The News.

The rupee hit a record low of 146.25 / dollar during an intraday trade in open market on Wednesday, dealers said. The ECAP however quoted the rupee closing at 144 unchanged from its previous level.

Sources said the government and exchange companies agreed on exchange rates with the Prime Minister Khan warned that no deviation from the agreed rates would be tolerated.

It was agreed that dollar buying and selling would be in band of 143.50 and 144, respectively. Likewise, buying and selling rates of Saudi Riyal were decided at 38.20 / 38.35. UAE Dirham’s buying and selling were set at 39.05 / 39.20.

Sources said the meeting called for ‘strict compliance’ with the set exchange rates. ECAP delegation vowed that it would not stand by any company diverging from the set rates, running dual sets of rates or avoiding receipts, they said.

President Forex Association of Pakistan Malik Bostan said the Prime Minister constituted a committee comprising the Adviser to the Prime Minister on Finance and the SBP’s Governor to develop mechanism on how to build up foreign exchange reserves.

“We have discussed some steps with the Prime Minister to control dollar outflows and increase inflows,” Bostan said, referring to the meeting with the Premier.

“We have asked the Prime Minister Khan to take measures to curb dollar smuggling to Afghanistan, which is resulting in shortage of greenback.”

Bostan said the exchange companies have potential to fetch $6-7 billion remittances flows per annum if the government allows more exchange companies to handle remittance business.

The currency dealers said a $6 billion loan agreement with the International Monetary Fund (IMF) stoked speculation of rupee devaluation as the IMF insisted on free-float exchange rate. The IMF board is yet to approve the loan. The rupee has depreciated about 34 percent since December 2017. “The rupee remained volatile and traded at higher prices across multiple exchange houses,” a dealer said.

“The currency has been hurt by relentless demand for greenback as exporters are not selling dollars onto the market, while investors are buying dollars and hoarding cash.”

The market players expected the rupee to depreciate further and saw a significant risk of currency devaluation in the short-to-medium term in response to the IMF agreement.

The rupee remained firmer at 141.39 to the dollar in the interbank market. Analysts said the currency was stable in the official market due to lack of import and debt payments.

Yaqoob Abubakar, an analyst at Tresmark an application that tracks financial markets said the market is considering unstable USD/PKR in future given the IMF bailout.

“Pakistan’s CAD (current account deficit) as a percentage of GDP is similar to its peers, but depleting reserves have been putting pressure on the rupee that will further weaken if ministry allows free float trading for the rupee against greenback that is supposed to be the mandatory condition for package,” Abubakar said.

The SBP’s foreign exchange reserves plunged to $8.9 billion during the week ended May 13 from $16 billion in May 2017. The government however said that it might not let the rupee fall as a result of the IMF program.