In a detailed statement on Tuesday, the Exchange Companies Association of Pakistan (ECAP) said it has decided to “remove a self-imposed price cap” it used to sell and buy dollars in the open market, adding that it will now trade in accordance with the prevalent demand and supply dynamics.

ECAP Chairman Malik Bostan said exchange companies had earlier placed a cap on the rate of dollar keeping in mind the “best interests of the country”.

“This turned out to be negative for the exchange rate,” he stated after a meeting of exchange companies.

“The rupee depreciated and a shortage of dollars was seen in the open market. This incentivised customers to buy from us and sell in the black market. People who genuinely needed dollars were then forced to turn to the black market.”

Bostan said the price-cap created a panic-like situation, and also tarnished the reputation of exchange companies.

He added that exchange companies had taken State Bank of Pakistan (SBP) Governor Jameel Ahmad into confidence.

“The decision to remove the dollar price cap will be more beneficial,” he said. “It will shrink the black market.”

Bostan also requested the public to cooperate with ECAP.

In the inter-bank market, Pakistani rupee maintained its downward trend against the US dollar for the 25th consecutive session, and depreciated Re0.25 or 0.11% to close at 230.4 on Tuesday.

Shortage of dollars

ECAP publishes its open-market rates on a daily basis, according to which the US dollar was trading between Rs238.50 and Rs240.75 on Tuesday.

However, the rates have been rendered meaningless for several weeks as consumers have been unable to get their hands on the US dollar at these prices.

While the rupee has stayed in a narrow range – compared to its previous volatility – in the inter-bank market for over three months, Pakistan has witnessed an acute shortage of foreign currency, leaving the so-called black market to attract customers with a higher premium.