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Move to reduce dollar price gap.

KARACHL -- The federal ministry of finance, State Bank and currency dealers have decided to adopt a joint strategy to narrow the wide gap in dollar prices in interbank and open markets rates, but no decision was taken to address the devaluation of local currency.

The Governor, State Bank, held meeting with exchange companies on Saturday to discuss the strategy to close the gap in the dollar price in the open and inter-bank markets. Earlier, a meeting between the Finance Minister, State Bank and currency dealers was held on Friday.

However, another scheduled meeting of the exchange companies with the minister of finance in Islamabad on Sunday has been postponed.

Rapid devaluation of local currency created a panic in the currency market while importers rushed to hold maximum amount to cover future imports.

The desperation was aggravated by the shrinking foreign exchange reserves of the country.

The State Bank seems to be helpless in this scenario while the ministry of finance took notice of the situation after a substantial deprecation of the local currency over the first 50 days of Nawaz government in office.

The finance minister held a meeting with exchange companies on Friday but no decision was taken, and the issue was left to the State Bank. The next day meeting of exchange companies with the SBP also failed to bring any concrete steps to apply brakes to devaluation.

It seems that both the ministry of finance and State Bank want exchange companies to reduce dollar price gap. Sources privy to these meetings informed that no discussion to deal with devaluation of local currency took place. We have decided to adopt a joint strategy to reduce the gap in the dollar rates of the two markets, said Malik Bostan, Chairman, Exchange Companies Association of Pakistan (ECAP).

He represented the exchange companies while meeting the Governor, State Bank, on Saturday. The SBP did not issue any statement regarding the meeting.

The State Bank is believed have assured that it would consider review of the controversial circular issued on July 23 to stop dollar outflow from the country.

The circular asked the currency dealers to get NTN number from those customers who buy or transact $10,000 or above.

We were told that the circular was issued for the betterment of the market situation, but the SBP is ready to consider the same for a review, said Bostan.

The exchange companies are demanding that they should be allowed import of dollars from Dubai against the selling of other foreign currencies.

Currently, exchange companies have to send back dollars through banks and get dollars in Pakistan.

They said banks do not provide the same amount of dollars as they send from Dubai which causes physical shortage of dollars in the open market.

Sources said the State Bank has assured that this demand would also be considered but no time limit was given.

The earlier demand for a ban on import of gold was noted by the finance minister on Fridays meeting, and he said that this demand would be reviewed after getting correct data from the trade ministry. Gold import since February has increased by 500 per cent from 280kg to 1400kg per month.

Gold importers buy dollars from open market as banks do not provide them dollars.

This sudden increase in gold import increased the dollar demand in the open market from $20m to $40m per day.
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Publication:Balochistan Times (Baluchistan Province, Pakistan)
Date:Jul 29, 2013
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