Rupee trading in range of 230-232 in open market as spread with inter-bank widens

[Zibago]

Rupee trading in range of 230-232 in open market as spread with inter-bank widens​

• Smuggling, low availability of dollar for importers widening gap, say currency dealers

Omar Qureshi Published September 5, 2022 Updated 2 minutes ago




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Spread between inter-bank and open-market rates soared to what currency dealers said was a historic high with the gap hitting Rs10-12 on Monday. The US dollar finished at 219.86 in the inter-bank market, but was trading at the 230-232 level in the open, a massive difference that usually stays within the range of Rs2-4, according to Exchange Companies Association of Pakistan (ECAP) data.
Multiple dealers Business Recorder reached out to said lack of availability of dollars in the open market following the suspension of duties and taxes on import of vegetables and increase in smuggling widened the spread.
Pakistan is seeing widespread damage from nation-wide floods with damage to crops causing a spike in prices of vegetables, particularly tomatoes and onions. Subsequently, the government of Pakistan moved to suspend all levies on import of the two items and shipments began arriving from Afghanistan and Iran as Islamabad looked to curtail rising inflation.
Pakistan's rupee depreciates 0.4% against US dollar
On Monday, the death toll from floods in Pakistan rose to 1,314 as authorities struggled to prevent the country's biggest lake from bursting and inundating nearby towns.
Spread in rates between inter-bank, open markets narrows as 'speculation ends'
Speaking to Business Recorder on Monday, Forex Association of Pakistan Chairman Malik Bostan said that there are several reasons behind the increase in spread but the biggest factor was that "importers were having troubles arranging dollars for import".
“Although the government has permitted duty and tax-free import of vegetables from Iran and Afghanistan, low availability of dollars for importers is a hurdle,” he said.
“Therefore, traders are forced to purchase the greenback from the black market and the flow of dollars to it is widening the spread in the open and inter-bank market.”
He informed Business Recorder that the rate per dollar in the black market is 234 for buying and 240 for selling.
“Moreover, banks have started to offer different rates to traders looking to import through letters of credits (LCs) and those willing to import through credit cards,” he said.
“Few importers are also misusing the Afghan Transit Trade facility and it is costing Pakistan,” he said.
ECAP President Zafar Paracha told Business Recorder open-market rates of foreign currencies have been going up for a while.
"For the past two years until early 2022, open market rate of dollar had been lower than because banks were selling excess dollars to the open-market. Now there is a shortage of dollars."
Another reason driving the increase in spread is “high amount of smuggling", he said.
“Dollar is going to Afghanistan and Iran and it is taking a toll on Pakistan's forex market.
“India buys dollars from Iran at rates that are far higher than ones prevailing in the market. This encourages Pakistani smugglers to transfer dollars to Iran to earn sizable profits as well.”
He claimed exchange companies in Pakistan were “quite short on dollars”.
“We recommended the government to stop smuggling through change in laws and plug all loop holes. Trading mechanisms with Afghanistan have to be revisited."

Rupee trading in range of 230-232 in open market as spread with inter-bank widens

* Smuggling, low availability of dollar for importers widening gap, say currency dealers

www.brecorder.com

 

[SEOminati]

The IMF funds are not going to last long, but the inflation will specially because of high transportation cost.

I really don't see this government producing a decent result specially after the flood situation.

I also quite don't understand how is IK going to steer the ship that is Pakistan.

 

[maithil]

Was supposed to be 180 after IMF deal.. Does not seem like happening. This government has brought a bucket full of bad luck for Pakistanis.

 

[Bilal.]

Is ISPR aghast yet?

 

[Catalystic]

How can it be smuggled?? Whose buying or stashing in afg?? Whats going on

 

[Zibago]

Was supposed to be 180 after IMF deal.. Does not seem like happening. This government has brought a bucket full of bad luck for Pakistanis.

Like many actual economists said again and again the government actions that were purely for optics like luxury import ban have devastated our industry and gutted our exports
Floods have acted as napalm to what once was a tree on fire

 

[Jango]

Pehli bar dekha hai where USD increased after getting IMF tranche rather than decreasing.

 

[Zibago]

Pehli bar dekha hai where USD increased after getting IMF tranche rather than decreasing.

Because of the deadly cocktail of floods, falling exports, Ukraine crisis, political turmoil and gutted reserves

 

[ghazi52]

.,.,

 

[SoulSpokesman]

@Zibago @maithil

I believe there was an implicit agreement between IMF and the Imported govt that PKR would be allowed to slide down to 230 to the dollar.

Regards

 

[VCheng]

Pehli bar dekha hai where USD increased after getting IMF tranche rather than decreasing.

@Zibago @maithil

I believe there was an implicit agreement between IMF and the Imported govt that PKR would be allowed to slide down to 230 to the dollar.

Regards

The value of the PKR will always depend on what Pakistan consumes and what it produces, i.e. the basic tenet of supply and demand. And therefore it will remain on a downward trajectory for the foreseeable future, and probably averaging 7-10% over the longer term given the basic weaknesses of its economy.

 

[Two banks of the River]

India buys dollars from Iran at rates that are far higher than ones prevailing in the market. This encourages Pakistani smugglers to transfer dollars to Iran to earn sizable profits as well.

Hmm, if India does so can someone explain why? Because in a country under western sanctions, USD is supposed to be difficult to come across right ?

 

[Ssan]

The value of the PKR will always depend on what Pakistan consumes and what it produces, i.e. the basic tenet of supply and demand. And therefore it will remain on a downward trajectory for the foreseeable future, and probably averaging 7-10% over the longer term given the basic weaknesses of its economy.

Not so long ago, PTI had managed to stabilize the rupee. The trick to a stable rupee is just to balance our CAD. Not rocket science. We have been consuming more than we are producing but if we can keep that difference to be smaller than our remittances, our rupee will be fine.

This govt of course has no credibility and the remittances have stalled after years of stellar growth under PTI. So with PDM, yes, abs no chance of stabilization.

 

[maithil]

@Zibago @maithil

I believe there was an implicit agreement between IMF and the Imported govt that PKR would be allowed to slide down to 230 to the dollar.

Regards

Govt has been unable to make CAD disappear even after taking unusually harsh approach. Measures which are certainly not advisable in modern economy. They have tried to practically kill imports, yet CAD is still not going anywhere. PKR depreciation seems to be a result of inherent weakness of economy as @VCheng suggested.

Results of the measures taken will be much higher fiscal deficit, high inflation, low growth, and less employment. Next govt will have nightmarish time managing economy.

 

[Ssan]

Hmm, if India does so can someone explain why? Because in a country under western sanctions, USD is supposed to be difficult to come across right ?

Actually this is a myth. Iran maybe under sanctions but oil is a valuable commodity and they still export it on the international market and get earnings in dollars. That india buys dollars from Iran is something I am hearing for the first time.