In a significant move, the Exchange Companies Association of Pakistan (ECAP) has decided to lift the US dollar cap, applicable as of tomorrow (Wednesday), to halt the market’s increasing “artificial” need for the greenback.
The State Bank of Pakistan’s official rate, the rate offered by exchange businesses, and the black market rate are the three rates at which the dollar is presently traded.
The association announced on Tuesday that it was removing the US dollar cap because it was having negative impacts. This came following a meeting of the ECAP members.
The sharp reduction in the central bank’s foreign exchange reserves, which have dropped to $4.6 billion, has had a significant negative impact on the exchange rate. The rupee has been declining “despite being handled,” according to currency analysts, by the State Bank of Pakistan (SBP).
Due to a lack of dollars, the difference in rates between the interbank and open markets has grown dramatically, severely harming the economy and directing remittances away from the official banking system and onto the black market.
The association’s statement highlighted the impact of various rates and stated that “There was artificial demand in the market as people would buy the dollar from us and sell it in the grey market.”
Some analysts have suggested that the lack of dollars may force gasoline and diesel to be rationed during the next two to three months, which would hurt the business, industry, and even agriculture, which depends on diesel during the harvesting season.
ECAP General Secretary Zafar Paracha was present at the association’s meeting held on Tuesday, which was presided over by ECAP Chairman Malik Bostan.
Bostan claimed that the decision to cap the dollar rate had turned out to be “negative” in a thorough statement released following the meeting.
“Instead of falling, the dollar rate increased, resulting in the unavailability of the greenback in the market which also gave birth to the black market.”
He also bemoaned the fact that people had to turn to the illicit market to purchase dollars for travel or to pay for their medical and educational costs.
The government, according to him, believed exchange corporations were “deliberately blackmailing” them as a result of the situation’s “fear in the market,” he claimed.
When asked if he thought that Finance Minister Ishaq Dar will lift the dollar cap, Paracha responded, “I am hopeful that things will proceed in a better path.”
The rupee finished today’s interbank market at 230.40, and the ECAP general secretary claimed that in the previous 8 to 10 days, the dollar’s worth had risen against it.
The removal of the artificial cap is being demanded by all forums, including the International Monetary Fund (IMF), so things will get better, Paracha continued.