Vested interests and not only the slightly improving Pak-US diplomatic face-off are responsible for the ongoing supply and demand crisis on the local currency market and eventual depreciation of rupee against the dollar, Profit has learnt. Further, the State Bank Thursday allowed the money exchange firms to acquire as much dollars as they need under the swap mode, a decision the currency dealers termed as “timely” and helpful in arresting the fresh depreciation of rupee against the US dollar.
Hoarding the greenback
As the renewed tussle between Islamabad and Washington hurt market sentiments Monday leading to panic trading of the dollar on the local money market, the “speculators”, including the money exchange companies, went all out to buy and hoard the greenback in their bid to get maximum benefit from a predictable appreciation of the US currency. Whereas the currency dealers named these vested interests as “investors”, the central bank also smelled a rat and Thursday issued a circular making it mandatory for the money exchangers to document their transactions and submit the same to the regulator on a daily basis. “Speculators and investors always take undue benefit from such rumours as we are seeing in the wake of Pak-US tension,” Malik Bostan chairman Exchange Companies of Pakistan (ECP) told Profit.
SBP aims at stabilisation
The ECP chief said the $20 million demand (for dollars) came to its routine position of $10 million on Thursday as soon as the “investors and speculators” fled the market. “Now we have genuine buyers like pilgrims etc. left on the market where demand has come to normal $10 million,” Bostan said. That was why, the currency dealer said, no money exchange company had gone to the State Bank for getting dollar through swap, an incentive the regulator announced on Thursday to stabilise the falling rupee rate. “The rupee saw a Rs1 gain (on Wednesday) and was traded at Rs88.50 against a dollar unlike Rs89.50 of Tuesday and Rs90.60 of Monday, which was the record low,” the ECP chairman said adding “We welcome the timely decision of SBP but the fleeing of profit-taking investors and speculators brought the demand to normal.” The ECP chief expects that the rupee would go up to the targeted Rs88 level on Thursday.
Vested interests
The alleged vested interests also include the money exchange companies as depicted by an SBP circular which, the central bank’s spokesman said, was to check the speculators. “This is to avoid speculation,” Syed Wasimuddin told Profit.
“All exchange companies, including exchange companies of category ‘B’, are required to document each and every transaction as related by regulatory requirements,” says EPD Circular Letter No. 7 issued Wednesday.
The circular said, “Apart from other reporting requirements, exchange companies of both categories are required to submit transactions report on daily basis.”
“Failure to comply with the above instructions will attract severe disciplinary action which may lead to suspension of the license of the company,” the regulator warned money exchangers.
The ECP chief was positive when asked whether or not some money exchange firms were involved in speculative trading. “Obviously, they (SBP) may have received reports about some companies hoarding dollars that made them issue this circular,” Bostan viewed.
The currency dealer said the exchange companies should not stock the dollars or any other currency and ensure normal buying/selling specially in such crisis times.