Trading trend on weekdays:
The demand pressure continued to drag rupee down at the start of fresh week’s trading on Monday. As expected, dollar showed more gains against its local counter part and appreciated by another 20 paisa as the currency was changing hands at Rs. 86/20 for buying and Rs. 86/70 for selling as against its Saturday’s closing price of Rs. 86/00 & Rs. 86/50 respectively. In the interbank too, dollar rallied to new highs and once against traded above Rs. 85/01 & Rs. 85/11 for buying and selling respectively. Not only the local demand but its international market gains amid upbeat economic data from the US also helped the greenback to add to its overnight exchange price in both forms of the market.

With no major change in the trading trend, the exchange price of dollar versus rupee continued to go up on Tuesday & Wednesday as well. Rupee failed to show any significant resistance against the persisting demand, lost another 0/10 paisa as dollar was changing hands at Rs. 86/20 as compared to its overnight closing price of Rs. 86/10. The dollar traded at Rs. 84/98 & Rs. 85/03 in the inter bank.

However a steady trend was witnessed in the open and interbank dealings on Wednesday and no major change in the price of dollar was witnessed. The currency which had closed at Rs. 86/20 the other day was changing hands at the same price on the desks as the demand pressure showed an overall decrease especially in the open market dealings today.

State Bank coming for the rescue:
The major development seen during the week under review was the arrival of a new set of directives for the exchange companies which aimed at arresting the free fall of the national currency taking place in the recent two months due to speculative trade, huge funds transfers through hundi & hawala and smuggling of greenback to Afghanistan through Swat.

The steps:
Taking some solid steps to control speculative buying of dollars by individuals, the SBP has once again decided to tighten its grip over the exchange companies. The central bank has directed the exchange companies to submit reports of all foreign exchange sale, purchase and outward remittance transactions on daily basis. It has been decided that exchange companies would report, on daily basis, all transactions, regardless of amount, made by them on account of sales and purchased over the counter, besides daily reporting of outward remittances.

A condition has also been imposed that every customer will produce and submit a copy of his/her CNIC at the time of buying or selling dollars from exchange companies.

On the other hand, in order to stop smuggling of dollars from the country, the Federal Investigation Agency (FIA) has made it compulsory for outbound travelers at Karachi airport from Saturday Jan 30 to produce the evidence of buying the dollar from legal channels.

This decision was taken the other day at a meeting held among representatives of Forex Association and Exchange Companies Association of Pakistan with officials of FIA and Interior Ministry.

Impact of the new directives:
The purpose of the new directives is to curb speculation primarily and monitor dollar transactions. These actions are certainly going to discourage the speculative forces at least for the time being as they would surely get sidelines. These forces were mainly responsible for causing an unusual demand of dollars & were resulting in a physical shortage of the currency in the market. The customers which were buying dollars only for short term gains would now get sideline as they will have to submit their CNIC at the time of purchasing the currency from any exchange company.

However, there is a fear that the condition of submitting CNIC at the time of purchasing dollars may have a negative impact on the exchange companies’ turnover. “This condition may nurture the black market in the country,” said Mr. Malik Bostan, President Forex Association of Pakistan. Mr. Bostan while talking to a new source has further said that implementing the condition of producing Computerized National Identity Card (CNIC) and submitting a copy at the time of buying or selling the dollars from exchange companies has resulted in minimizing the dollar trade near to zero in open market.

On the other hand, the restriction of showing original purchase receipts at the airport would also encourage buyers to buy foreign exchange only from authorized dealers instead of illegal channels. Further it would also put a check on the out going individuals against the illegal/unnecessary physical currency transfers.

Short term outlook:
These steps should bring a positive impact on the market in the short term. However it is to be noted that since genuine buying is also high these days plus the inter bank dollar price is also on a record level, it would be unrealistic to expect any major recovery in the exchange price in the kerb as well. The dollar price would marginally come down but would remain on a level near the interbank dollar rate.