Rein in gold import to bridle rising dollar, forex traders tell govt

Economic managers rushed to the commercial hub of the country to ascertain the causes of Friday’s devaluation of the rupee against the dollar which saw the former fall to an alarming level in the kerb market.

Friday saw the rupee trading at Rs 104 against the dollar on the kerb market and at Rs 101.75 on the inter-bank market.

Federal Finance Minister Senator Ishaq Dar and State Bank of Pakistan (SBP) Governor Yaseen Anwar hurriedly called a meeting which was originally scheduled for Sunday, with representatives of the Exchange Companies Association of Pakistan (ECAP) at the SBP. The ECAP delegation was led by ECAP’s President Malik Bostan.

Sources said that Dar wanted to determine why the rupee-dollar parity had deteriorated to such an alarming extent and to establish possible solutions to this problem. The SBP termed the meeting “productive and held in a cordial atmosphere”.

The minister expressed his concern over the rising spread between interbank and kerb market rates, a SBP statement revealed.

Money exchangers are believed to have told Dar that a record import of gold had created an enormous demand for the greenback in the open market.

“The demand in the open market has doubled to Rs 40 million (per day) against Rs 20 million,” Bostan told Pakistan Today.

Bostan explained that gold importers were importing the precious metal on the basis of dollars as they were not allowed to open their letters of credits (LC) for importing the commodity. “Compared to 280 kg gold imported (on monthly basis) during January-February, the monthly import of gold had increased to a record 1400 kg in June and July,” the currency dealer said.

Bostan added, “The importers turned to the open market to cater to their need for the dollar. This caused the demand to rise by $20 to 25 million on daily basis.”

He said the gold importers were also using illegal channels like ‘Hundi’ and ‘Hawala’ to raise the much-needed dollar in cash.

Bostan said that the finance minister was advised to either ban the import of gold for a few months or allow the importers to open LCs which would not burden the open market.

Furthermore, Bostan said that the unregulated gold import had resulted in gold smuggling to India where the government had increased the import duty from two to six percent.

On the impact of a ban from Islamabad, Bostan said that the rupee would appreciate by Rs 1 to 2 if the gold import was sanctioned.

Meanwhile, the SBP quoted Dar as having emphasised his confidence in the meeting with the exchange companies that the latter would work towards narrowing the prevailing gap. “The finance minister at the outset expressed his appreciation of the positive role played by the exchange companies in the past for the country,” SBP said.

The ECAP members presented their views and proposals following which it was decided that the ECAP would have another meeting with the SBP’s governor to deliberate further on the issues, and to arrive at methods for its implementation with the expectation that the exchange firms would play a positive role in reducing the spread, the SBP said.

Sources said that the ECAP members would meet the State Bank Governor on Saturday (today).