SBP stipulation creates oversupply of dollars and other currencies

The central bank seems happy with the present scenario, as the kerb market US dollar rate hovers below the inter-bank market rate and there is no adjustment as per market rate

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KARACHI: The central bank’s decision to stop currency exchange companies from delivery of foreign currencies to home is constraining big investors from currency trading, said forex traders.

According to a State Bank of Pakistan (SBP) stipulation, foreign currency can only be converted/exchanged at the counters of exchange companies, which has contributed to an oversupply of dollars and other currencies, reports Dawn.

However, currency dealers reiterate the central bank’s stipulation has made business riskier for big investors.

The stipulation was enforced by the central bank for making kerb market business more unambiguous and a circular was issued in this regard last month barring movement of foreign currency from one city to another and told exchange companies to open bank accounts for transferring money.

This step was taken after the inclusion of Pakistan in the Financial Action Task Force’s grey list.

President Forex Association of Pakistan Malik Bostan stated “Large investors have left the open market free from their influence which converted the currency market dominated by sellers while buyers have been declining,” said Malik Bostan, President Forex Association of Pakistan.”

The central bank seems happy with the present scenario, as the kerb market US dollar rate hovers below the inter-bank market rate and there is no adjustment as per market rate.

In the last financial year 2017-18, the central bank had revised inter-bank dollar rates three times following higher kerb market dollar rates.

The last revision of four percent wasn’t sustained and dollar rate in the inter-bank market declined to Rs124 from Rs128.5 and have continued decreasing every day.

According to currency dealers, the exchange rate had been positively influenced by cash transactions being conducted only via banks as kerb market trading went through banking records.