According to The News on Friday, there was a recent two-day decrease in the price of the rupee versus the dollar that has now reversed itself and was allegedly caused by manipulation by some banks.
There was no discernible shift in the fundamentals of market forces on Thursday, despite the rupee turning the tide against the dollar and strengthening in both the open and interbank markets at the same time with wide margins.
The reversal demonstrates that certain commercial banks’ complicity in manipulating the currency market to their advantage and profit was what caused the decrease in the value of the rupee.
In the past, the banking industry’s earnings exploded without any consequences or being subject to windfall gains tax after managing to thwart any such government measures.
The News was informed by intelligence sources that the commercial banks and other participants were acting in a cartel-like manner. They continued by saying that the banks artificially inflate the interbank dollar rate to Rs282 in order to maximize their profits on lined-up Letters of Credits (LCs) of importers and purposefully delay LCs to create an artificial shortage of dollars in the market.
Following a commotion from importers and other parties, the banks attributed the rise in the dollar to the government’s impending installment payment to the International Monetary Fund (IMF) in November.
However, market insiders told The News that there was plenty of cash available because money changers were seeing healthy inflows.
In order to profit, the banks gathered USD around 276–277 and subsequently increased the interbank rate to over 280. Market participants assert that banks typically use these kinds of strategies to counter losses brought on by the ongoing decline in the value of the dollar.
When questioned about the matter, the chairman of the Exchange Companies Association of Pakistan (ECAP), Malik Bostan, placed the blame on the manipulation, which involved attempts to turn all gains into losses by fomenting a fresh wave of the rupee’s weakness against the dollar and passing the information along to higher authorities.
Bostan claimed that the rupee made a comeback on Thursday and expressed optimism that the pattern will hold in the days to come.
The general secretary of ECAP, Zafar Paracha, concurred with Bostan’s assessment of the suspected manipulation by banks. He continued by saying that appropriate steps made by the pertinent authorities improved the parity between the rupee and the dollar in both interbank and open markets.
Independent economists contend, however, that the government made administrative moves that had favorable outcomes. The sustainability of those benefits, they cautioned, depends on the economic managers’ capacity to attract new inflows of dollars and rescue Pakistan from its dollar liquidity crisis.
According to them, Pakistan would have to pay back $790 million to service its foreign debt, which includes principal and mark-up repayments. In recent weeks, the government had used this to pay back the interest on Euro bonds.
The dollar inflows must be increased in order to stabilize the currency market consistently, as the government is now required to return $187 million in principle and markup in the current month.
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