Pakistan pins hope on dollar supply to boost rupee

Pakistan expects its currency will appreciate within the next two months after a sufficient supply of dollar in open market. In a move to support the falling rupee the State Bank of Pakistan, or SBP, allowed Foreign Exchange Companies, or FECs, to bring in US dollars directly in baggage or in their accounts against the sale of foreign currencies abroad.
"This arrangement shall remain in operation from August 3 to October 15 unless advised otherwise or until further instructions," the SBP said.
However, the State Bank has made it mandatory to bring dollars only through Jinnah Airport, Karachi. Currency dealers said that the SBP's decision would immediately improve dollar supply in the market. "It will reduce demand, bring down difference in dollar rates in open/inter-bank and will bring stability in the exchange rate," they said.
Demand for dollar likely to remain high during the Haj season. Pakistani rupee dropped to Rs104.30 to a greenback last week. However, by the weekend dollar slipped to Rs102.70/103.
The pro-business Prime Minister Nawaz Sharif and the SBP are struggling to keep Pakistan's currency stable. But will the falling rupee start moving up against the mighty dollar? The early answer from the market was mixed. After the exchange companies complete their cash inflows in the prescribed two months, the best guess at the moment is that rupee may be remain at Rs102 to a dollar. The SBP's Circular letter No.166 of July 27 said: "It has been decided that, henceforth, FECs may also import cash US dollars against export of permissible foreign currencies. FECs may also continue to export permissible foreign currencies against repatriation of equivalent US dollars in their foreign currency accounts, maintained in Pakistan as per the existing procedure."
"Cash US dollars must be brought into Pakistan within two working days from the date of export of foreign currencies," it said.
The central bank decision came on the back of July 24 meeting between SBP Governor Ashraf Mahmood Wathra and the FECs, headed by Malik Bostaan, president of Forex Association of Pakistan. Governor Wathra asked the reasons for sudden rise in dollar prices since the dollar rose to Rs103.40 in the open market. In fact many deals were done at Rs104.30 to a dollar by the time. Malik Bostan informed him that the exchange companies were out of dollar supply from commercial banks since July 14, which led to a shortage of greenbacks in the market.
The demand for dollars likely to remain high because more than 60,000 Pakistanis are getting ready to leave for pilgrimage in about 45 days.
Zafar Paracha, secretary, Exchange Companies Association of Pakistan said that FECs were banned in April 2005 to bring dollars into the country and were bound to send dollars through TT (telegraphic transfer-through banks).
Meanwhile, lower gold priced attracted huge investment from Pakistanis. Gold buying rose in Pakistan as the bullion dropped to a five-year low in terms of dollars. Does it mean that Pakistanis are buying more dollars to buy ever-larger quantities of a cheaper gold? Amjad Khan, chief operating officer, Pakistan Metal Exchange, or PMEX, said: "The trade volume in gold increased by 20 per cent on July 23, when it sank to a five-year low at $1,088.05 an ounce."
"At that price, it was a steep fall of around $30 an ounce, in a single day. The long holidays - July 17 to 21 - held no sway at the PMEX online platform and traders made significant deals in gold," Amjad Khan said.
The post-holiday session recorded Rs6 billion trade volumes in gold and crude compared to the usual Rs3-4 billion in a normal sessions. The gold share in the total volumes stood at 30-40 per cent at PMEX," Amjad Khan said.
On the big gold trade volume he is supported by the Karachi bullion market's Muhammad Hanif. He said: "The market witnessed a 15-20 per cent surge in buying on gold when the market resumed its working after observing Eid holidays. The increase in buying is in sharp contrast to zero buying in the holy month of Ramadan.
Views expressed by the author are his own and do not reflect the newspaper's policy.