In an apparent response to concerns raised by the International Monetary Fund (IMF) regarding the government’s control over the rupee-dollar exchange rate, Pakistan’s central bank has permitted commercial banks to buy US dollars from the inter-bank market for settling international payments made through credit cards by their clients.
The aim of this move, according to Zafar Paracha, the General Secretary of the Exchange Companies Association of Pakistan, is to narrow the gap between exchange rates in the inter-bank and open markets. He projected that the gap would decrease by Rs20-25 over the next few days, with an immediate reduction of Rs15-20 expected on Thursday (June 1).
The exchange rate spread had widened to a record Rs27 due to a significant depreciation of approximately Rs20 in the past 10 days, reaching an all-time low of Rs312/$ in the open market. In contrast, the exchange rate in the inter-bank market remained stable at around Rs285/$ over the past couple of weeks.
The widening gap indicated that the actual value of the rupee was reflected in the open market. This led the IMF to recommend that the government focus on restoring proper functioning in the foreign exchange market.
Experts have noted that the IMF desires a more consistent exchange rate across all currency markets in the country.
On Wednesday, the rupee depreciated by 0.04% (Rs0.12) to reach Rs285.47 against the dollar in the inter-bank market. However, in the open market, the currency recovered by 0.32% (Re1) to reach Rs311/$. Paracha clarified that the nominal correction in the open market was unrelated to the State Bank of Pakistan’s (SBP) notification, as it was issued after the market had closed.
Paracha further stated that the rupee would likely face pressure in the inter-bank market until the IMF program is reinstated, and friendly countries announce new loan packages.
The notice from the State Bank of Pakistan (SBP) circulating in the market stated that “authorized dealers (commercial banks) are allowed to purchase US dollars from the inter-bank for the settlement of card-based cross-border transactions with IPS (international payment schemes).” These instructions are effective immediately until July 31, 2023, unless otherwise notified.