Forex companies decide removing exchange rate cap after SBP suspends many outlets

Forex companies decide removing exchange rate cap after SBP suspends many outlets

KARACHI: Foreign exchange companies on Tuesday decided to remove cap on exchange rate, which was meant to control the dollar rate in open market.

Interestingly, the decision has been take after the State Bank of Pakistan (SBP) suspended about 11 outlets of eight exchange companies for refusing sale of the foreign currency.

READ MORE: No letup in rupee fall; dollar surges to PKR 230.40 in interbank

A statement issued by Exchange Companies Association of Pakistan (ECAP) stated that an important meeting of the association was held, which was presided over by its chairman Malik Bostan.

General Secretary Zafar Paracha and other members including Haji Ramzan, Haji Haroon, Haji Mureed Hussain attended the meeting.

“All the members of the association unanimously adopted to remove the cap on exchange rate from Wednesday January 25, 2023,” according to the statement.

READ MORE: State Bank suspends exchange companies for refusing sales of foreign currencies

The cap was imposed in the best interest of the country with aims to ensure availability of the greenback. “But it adversely affected and dollar rates increased significantly after imposing the cap,” Malik Bostan stated. “This resulted in creation of black market,” he added.

A day earlier, the SBP suspended the authorization of eleven (11) outlets of eight (08) Exchange Companies, for seven (07) to fifteen (15) days due to violations of regulatory instructions.

“SBP conducted mystery shopping at the outlets of exchange companies wherein it was observed that the aforesaid outlets were refusing sale of foreign currencies to their customers despite having availability of the same at their counters,” according to a statement issued by the central bank.

Malik Bostan said that before removing the cap an important meeting would be held with SBP deputy governor at morning on January 25, 2023.

READ MORE; SBP raises benchmark rate by 100 basis points to check inflation

“Removing cap will ensure availability of dollars and it will also eliminate the black market,” Bostan added.

He said that exchange companies are emptied and presently all inflows of the foreign currencies are stopped. “In the past we [exchange companies] surrender 20 per cent of the foreign remittances to banks and 80 per cent utilize for general public. But now all the inflows under remittances are being surrendered,” he added.

READ MORE: SBP allows one-time facilitation to importers for consignment clearance

Bostan said that due to huge gap in interbank and black market rates people are shunning the formal channels and using black market to exchange their dollars.

“In past three months, the inflows of worker remittances are dropped to $2 billion from $3 billion. Hawala operators are active and the gap is about Rs30, which is very attractive for black market,” he added.

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