Rupee gains value on SBP measures

KARACHI - The local currency showed a strong and stunning gain against the US dollar on Monday in the backdrop of the State Bank of Pakistan's decision to improve banks liquidity position and to pull up the currency dealers and the bankers involved in the manipulation of the exchange rate.

On Monday the dollar-rupee exchange rate opened at Rs 85 in the open market and closed at 82.50. Thus, the rupee posted gain of Rs 2.50 paisa against dollar in the kerb dealings.

While in the interbank operations, the rupee made a strong recovery versus dollar as appreciated by 1.80 paisa in the wake of low demand of the US currency in the primary market.

Positive trend and sentiments were witnessed in the forex market the other day followed by SBP intervention by providing additional cash liquidity to meet the market demand and the central bank warning to suspend/cancel licences of those banks/Exchange Companies which often find in violating foreign exchange regulations act.

During last week, the dollar-rupee exchange rate parity had breached the barrier of Rs 86 which was reported as a "highest-ever" exchange rate price in the open market.  Similarly throughout last week, the exchange rate price between the two-trading currencies had reached at peak level as the rupee had depreciated sharply against the dollar, closing at Rs 84 in the interbank dealings on account of highly speculative forex market environment, liquidity crunch, backed by worrisome economic data.

It is important to mention here that SBP had asked the companies to ensure maintenance of reasonable exchange rate differential between interbank and kerb market. In order to meet their (Exchange Companies') immediate requirements of cash US$, SBP provided cash liquidity at the then prevailing kerb rate i.e. PKR80/US$.

According to the SBP statement issued earlier, the central bank has been enforcing the Foreign Exchange Manual and its various provisions as well as using these tools like disallowing certain activities of the Exchange Companies or suspending the licences for a certain period. Letters for calling explanation and Show Cause Notices were also issued.  

The State Bank took a number of actions against Exchange Companies for violating its rules and regulations. Moreover, SBP has also taken a number of policy and administrative measures to stabilize forex markets since April 2008. State Bank had assured the Exchange Companies that it would provide cash FCY liquidity for market support as and when required, so that Exchange Companies could ensure uninterrupted supply of Cash FCY to their bonafide customers. However, such support will be provided in accordance with the exchange rate prevailing on the day of transaction. Under these arrangements, SBP provided the liquidity to both Exchange Companies and Banks to meet the market demand.