The spread between interbank rates and open market rates climbed to what traders said was an all-time high, with the spread reaching Rs10-12 on Monday. The US Dollar ended at 219.86 in the interbank market, but was trading at the 230-232 level in the open, a huge difference that generally remains within the Rs2-4 range, according to Exchange Companies Association of Pakistan ( ECAP) Data.
Several dealers company registrar The lack of availability of dollars on the open market following the suspension of duties and taxes on the import of vegetables and the increase in smuggling have widened the spread.
Pakistan is suffering massive damage from nationwide flooding with crop damage causing a spike in vegetable prices, especially tomatoes and onions. Subsequently, the Pakistani government decided to suspend all import levies on the two items and shipments began arriving from Afghanistan and Iran as Islamabad sought to curb rising inflation.
Pakistani rupee depreciates 0.4% against US dollar
On Monday, the death toll from flooding in Pakistan rose to 1,314 as authorities scrambled to prevent the country’s largest lake from bursting and flooding nearby towns.
Rate spread between open interbank markets narrows as ‘speculation comes to an end’
Talk to company registrar On Monday, Forex Association of Pakistan President Malik Bostan said there were several reasons for the increase in the spread, but the most important factor was that “importers were struggling to arrange dollars for import”.
“Although the government has allowed duty-free and tax-free import of vegetables from Iran and Afghanistan, the low availability of dollars for importers is a hindrance,” he said.
“Therefore, traders are forced to buy the greenback in the black market and the flow of dollars to it widens the gap in the open and interbank market.”
He informed company registrar that the rate per dollar on the black market is 234 for buying and 240 for selling.
“Additionally, banks have started offering different rates for merchants who want to import through Letters of Credit (LC) and those who want to import by credit card,” he said.
“Few importers are also abusing the Afghan transit trade facility and it is expensive for Pakistan,” he said.
ECAP President Zafar Paracha said company registrar Foreign exchange rates on the open market have been rising for some time.
“For the past two years until early 2022, the dollar rate in the open market was lower than that due to banks selling excess dollars in the open market. Now there is a shortage of dollars .”
Another reason behind the increased spread is “the high amount of contraband,” he said.
“The dollar goes to Afghanistan and Iran and it weighs on Pakistan’s foreign exchange market.
“India is buying dollars from Iran at much higher rates than prevailing in the market. This encourages Pakistani smugglers to transfer dollars to Iran to make huge profits as well.
He claimed that currency exchange companies in Pakistan were “quite short of dollars”.
“We recommended to the government to stop the smuggling by changing the laws and closing all loopholes. Trade mechanisms with Afghanistan need to be reviewed.”