Rupee trading in range of 230-232 in open market as spread with inter-bank widens

Spread between inter-bank and open-market rates soared to what currency dealers said was a historic high with the gap hitting Rs10-12 on Monday. The US dollar finished at 219.86 in the inter-bank market, but was trading at the 230-232 level in the open, a massive difference that usually stays within the range of Rs2-4, according to Exchange Companies Association of Pakistan (ECAP) data.

Multiple dealers Business Recorder reached out to said lack of availability of dollars in the open market following the suspension of duties and taxes on import of vegetables and increase in smuggling widened the spread.

Pakistan is seeing widespread damage from nation-wide floods with damage to crops causing a spike in prices of vegetables, particularly tomatoes and onions. Subsequently, the government of Pakistan moved to suspend all levies on import of the two items and shipments began arriving from Afghanistan and Iran as Islamabad looked to curtail rising inflation.

Pakistan's rupee depreciates 0.4% against US dollar

On Monday, the death toll from floods in Pakistan rose to 1,314 as authorities struggled to prevent the country's biggest lake from bursting and inundating nearby towns.

Spread in rates between inter-bank, open markets narrows as 'speculation ends'

Speaking to Business Recorder on Monday, Forex Association of Pakistan Chairman Malik Bostan said that there are several reasons behind the increase in spread but the biggest factor was that "importers were having troubles arranging dollars for import".

“Although the government has permitted duty and tax-free import of vegetables from Iran and Afghanistan, low availability of dollars for importers is a hurdle,” he said.

“Therefore, traders are forced to purchase the greenback from the black market and the flow of dollars to it is widening the spread in the open and inter-bank market.”

He informed Business Recorder that the rate per dollar in the black market is 234 for buying and 240 for selling.

“Moreover, banks have started to offer different rates to traders looking to import through letters of credits (LCs) and those willing to import through credit cards,” he said.

“Few importers are also misusing the Afghan Transit Trade facility and it is costing Pakistan,” he said.

ECAP President Zafar Paracha told Business Recorder open-market rates of foreign currencies have been going up for a while.

"For the past two years until early 2022, open market rate of dollar had been lower than because banks were selling excess dollars to the open-market. Now there is a shortage of dollars."

Another reason driving the increase in spread is “high amount of smuggling", he said.

“Dollar is going to Afghanistan and Iran and it is taking a toll on Pakistan's forex market.

“India buys dollars from Iran at rates that are far higher than ones prevailing in the market. This encourages Pakistani smugglers to transfer dollars to Iran to earn sizable profits as well.”

He claimed exchange companies in Pakistan were “quite short on dollars”.

“We recommended the government to stop smuggling through change in laws and plug all loop holes. Trading mechanisms with Afghanistan have to be revisited."