KARACHI: Law enforcement agencies carried out a series of raids to crack down on foreign currency trafficking and illegal foreign exchange deals in an effort to stop rupee slide, a central bank official said on Tuesday.
Abid Qamar, the chief spokesman for the SBP, said last week the central bank has introduced various regulatory measures to enhance transparency in the foreign currency transactions by exchange companies and to curb the undesirable outflow of cash foreign currency.
“Besides, the SBP has been actively coordinating with the relevant stakeholders in the federal government and law enforcement agencies, including Federal Investigation Agency (FIA) to curb the menace of illegal foreign exchange operations and smuggling of foreign currency,” Qamar said in an email response to The News.
Reza Baqir, governor SBP, in September said the central bank was closely “monitoring the cash markets and money changers around the Pakistan-Afghanistan borders (both formal and informal) and would ask FBR and FIA to take action if necessary”.
The rupee remained under pressure due to a host of reasons, including hoarding of the greenback by some money changers. Fitch Ratings, in its latest report attributed the slide in the currency to the increased inflow of dollars outside Pakistan, and into Afghanistan.
Analysts said the rupee pared some losses only when the FIA started a crackdown, arresting some notable money changers on alleged hoarding of dollars.
However, the rupee’s slide continued and it fell to an all-time low against the dollar on Tuesday weighed down by payments for imports with stoking fears of a rise in inflation and higher current account deficit amid commodities boom added to pressure on the local currency.
The rupee closed at a life low of 171.04 to the dollar. The unit ended at 170.74 in the previous session. The rupee had touched its previous record low of 170.96 on October 6, 2021.
Dealers said the demand for the greenback is huge from the manufacturing, oil, and other commodity importers and the inflows are certainly not adequate to meet demands.
There are also concerns about the weakening macroeconomic fundamentals as record-high global commodity prices have already contributed the most in pushing Pakistan’s trade deficit for the first three months of the 2021/22 fiscal year to $11.7 billion. The unit prices for key imports, for example, crude oil, coal, gas, fertilizer diammonium phosphate (DAP) and steel scrap, and palm oil continued to go up. It outpaced prices for Pakistan’s exports.
The rupee has been depreciating slowly since May. It is now at 171 to the dollar, 12 percent weaker than its peak in May of 152. 28.
Fitch expects the rupee to weaken to 180 versus a previous forecast of 165 in 20220 based on Pakistan’s worsening terms of trade, tighter US monetary policy, alongside the flow of dollars out of Pakistan and into Afghanistan.
The rupee adjustment and a double whammy from record-high international commodity prices are likely to push consumer price index inflation above 10 percent this fiscal year.
Alfalah Securities in a market note said the rupee will remain vulnerable against dollar, they expect “exchange rate to climb to 182 by FY2022 end”.
However, some analysts believe pressure on the rupee to reduce as increasing commodity cycle and proactive approach of government to restrict non-essential imports would slow down the pace of imports.
“Restriction on financing terms, imposition of 100 percent cash margin on imports of additional items, and curbing undesirable foreign currency flows by State Bank of Pakistan would help to arrest pressure on Rupee,” said Muhammad Awais Ashraf, the head of research at Foundation Securities.
“SBP reserves at $19.1 billion and REER level of 97.37 are also encouraging factors as the rupee has already corrected from the start of May 2021. However, the evolving situation of Afghanistan could be a significant risk to exchange rate and can’t be ruled out.”
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