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KARACHI: In order to control the volatility in the exchange rate, the State Bank of Pakistan (SBP) has initiated strict monitoring of the foreign exchange operations of exchange companies and banks and suspended the operations of four branches of two exchange companies for violation of SBP regulations.

In view of recent volatility in the exchange rate and the difference between the interbank rate and the rate offered by Exchange Companies (ECs) and banks to their customers, the State Bank has increased the monitoring of the foreign exchange operations of ECs and banks.

In this respect, from Monday August 1, 2022, the SBP has started inspections of a number of exchange companies and banks to inspect the currency operation.

During these surprise visits, on Tuesday, SBP suspended the operations of four branches of two ECs namely Galaxy Exchange Co and Al-Hameed International Money Exchange Co, for violation of SBP regulations.

According to SBP, it has also imposed monetary penalties on some ECs in the recent past for violating the rules and regulation issued by SBP for currency operation. Besides, due to violations of SBP instructions, arrangements of 13 franchises have been terminated by six different ECs in the recent past.

Business entities incorporated abroad: SBP introduces two separate categories of forex, PKR accounts

The SBP has also started conducting mystery shopping exercises throughout Pakistan to investigate the apprehensions that some ECs are not selling foreign currency to their customers. In this regard, a meeting of the Exchange Companies Association of Pakistan (ECAP) has also been called on August 4, 2022 at the SBP.

If needed, the SBP said, it would augment its enforcement actions on the ECs and the banks in light of findings of the on-going inspections and mystery shopping.

The actions taken by the SBP along with other good news, help to improve the exchange rate in the interbank and open currency market as on Wednesday, the Pak rupee recorded the highest gain in absolute terms against US dollar.

Analysts said that lower than expected imports for July and the IMF Resident Representative’s statement that Pakistan has met all prior conditions helped Pak rupee to gain Rs9.6 or 4 percent to Rs 229 from Tuesday’s closing of Rs 238 in the interbank market.

Pak rupee had fallen by Rs52 or 23 percent in 2022 to date and Rs19 or 8 percent during the last two weeks on fears of delay in the IMF program, falling FX reserves and increased political noise. However, not it has started the recovery and is likely to gain further in the coming days.

The SBP and the Finance Ministry recently in a statement said that the rupee has overshot temporarily but it is expected to appreciate in line with fundamentals over the next few months.

The SBP expects that with controlled import bill and lower trade deficit, the rupee is expected to gradually strengthen.

Pak rupee depreciation has been overdone and driven by sentiment. The rupee has overshot due to concerns about domestic politics and the IMF program. This uncertainty is being resolved, such that the sentiment-driven part of the rupee depreciation will also unwind over the coming period.

Copyright Business Recorder, 2022

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