Pakistani rupee falls after market maker group removes currency cap

  • The IMF wants Pakistan to adopt a market-based exchange rate
  • Pakistan needs more IMF money
  • Banks will be asked to bring dollar exchange companies
  • The artificial devaluation of the Pakistani rupee encouraged the black market
  • FinMin Ishaq Dar prepares to support rupee against IMF advice

KARACHI, Pakistan, Jan 25 (Reuters) – Pakistan’s rupee fell by 1.2% on Wednesday after the foreign exchange agency lifted the currency’s cap, saying it had caused “artificial” inflation for an economy desperate for aid. International Monetary Fund.

This move forward in the exchange rate should please the IMF, because that is one of the conditions of the lender before agreeing to open a bailout program for Pakistan.

Finance Minister Ishaq Dar’s efforts to defend the rupee, including intervention in the money market, have gone against the advice of the IMF.

Battling the highest inflation in decades, the central bank has raised interest rates sharply, but the country lacks foreign reserves to cover three weeks of imports and is struggling to meet investment obligations. outside of it.

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The Exchange Corporation of Pakistan (ECAP) said late on Tuesday that it is raising the currency cap in the interest of the country.

“We have decided that we will bring the exchange rate on par (with) what we offer to banks against credit cards,” ECAP Secretary General Zafar Paracha said in a statement, adding that the level is 255 to 256 rupees to the dollar.

The rupee closed at 240.60 to the US dollar and traded at 243 in the first open trade on Wednesday, ECAP said in a statement, compared with a range of 237.75/240 at the close on Tuesday.

In the interbank market, the rupee decreased by 0.49 rupees or 0.21% against the dollar.

The official exchange rate of the rupee has fallen 11.23% against the dollar since the start of the 2022-23 fiscal year, ending on June 30.

Before the cap was removed from the rupee, the market looked at three different rates to determine its value – the state-owned bank rate, the foreign exchange agency’s rate and the black market rate.

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“We think that the dollar and bank rates may fall by 5% in a few days,” said Mohammed Sohail, chief operating officer at brokerage Topline Securities.

ECAP Chairman Malik Bostan told Reuters that the central bank had given assurances at the meeting that commercial banks would be told to bring in dollar exchange facilities within a week.

“We are facing shortages. We don’t have physical dollars,” Bostan said. “People don’t sell dollars. They just buy.”

He said removing the cap would end the black market, although it would take time to address the gap.

“The black market price is still stable in the range of 260-270. The decision of the exchange office has not had any impact,” said Fahad Rauf, head of research at Ismail Iqbal Securities.

Stock market investors responded favorably to the decision to withdraw funds, with the Pakistan Stock Exchange’s (PSX) benchmark index (.KSE) rising 1.77%. Topline’s Sohail said investors are hopeful that removing the cap will help prompt the IMF to resume payments.

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The IMF has yet to approve its ninth round of disbursements of $1.1 billion, which was due in November last year. The fund requires Pakistan to cut aid, reduce energy sector debt and increase taxes to reduce the budget deficit, and adjust the exchange rate.

Prime Minister Shehbaz Sharif said on Tuesday that his country is ready to discuss all IMF demands.

There was no increase on Wednesday in futures rates released by the central bank every day. After falling early in the morning, the rupee remained stable till the close of trading.

Rauf said the exchange industry has become irrelevant in the face of a growing black market.

He added, “The government and the central bank need to accelerate the pace of deregulation otherwise the black market will continue to flourish.”

Statements by Ariba Shahid in Karachi and Asif Shahzad in Islamabad; Edited by Kim Coghill, Simon Cameron-Moore and Christina Fincher

Our principles: Thomson Reuters Trust Principles.

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