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RECORDER REPORT
KARACHI (May 10 2008): Pak rupee strengthened by 20 paisas against the dollar due to intervention by the State Bank of Pakistan on the interbank market and stopping the exchange companies from sending cash abroad in pound sterling, euro and UAE Dirham on Friday. The SBP also withdrew the facility of Nostro accounts with foreign banks.

At the opening PKR 68.45 was fetching one US dollar. Soon after the rupee started strengthening to Rs 68.15 per dollar. However, aggressive import booking reversed the trend to weaken Pak rupee as low as 69.70/69.80 to a dollar.

After bank heads returned from a meeting with the SBP Governor, nearly all banks became dollar sellers with very few buyers. As a result the rupee gained to PKR 69.50 to dollar. But then heavy intervention by SBP through National Bank of Pakistan and Citibank strengthened the rupee further and a deal was reported at PKR 66 to a dollar.

At the end of the day (Monday value) trades were conducted at PKR 68.25 to one US dollar. On Friday six months forward cover premium rose from Rs 1.83 to Rs 2.05 with rumours that SBP may temporarily disallow forward bookings in order to curb excessive import booking.

Further, the knowledgeable experts say that inflow and outflows based on SBP 'M' Forms for settlement do not take into account the forward bookings which are off-book transactions in banks and reflected in their Nostros. Exchange companies which were on sideline, on Friday, due to the sudden withdrawal of cash exports were awaiting instructions from SBP regarding disposal of disallowed export currency.

The State Bank of Pakistan, amending Exchange Companies Rules & Regulations, said that earlier on July 8, 2006 through FE Circular No 8, exchange companies were required that all permissible inflows/outflows should be routed through either their Nostro Accounts with banks abroad or their FCY Accounts maintained with commercial banks in Pakistan.

The SBP on Friday withdrew the facility of Nostro Account with banks abroad and instructed the exchange companies that all permissible inflows/outflows of the exchange companies are to be routed only through FCY Accounts maintained with commercial banks in Pakistan.

"All exchange companies are, therefore, required to close all their existing Nostro Accounts with banks abroad, and bring back the balances held in those accounts into their FCY Accounts in Pakistan, latest by May 31, 2008," the SBP said.

All exchange companies are required to report compliance of the above instructions to Exchange Policy Department along with documentary evidence, the SBP added. The central bank also revised the procedure for export of FCYs other than US dollars was prescribed. Henceforth exchange companies are not allowed to export cash in pound, euro and UAE dirham.

Further, with a view to focus exchange companies on their primary function of promoting home remittances, it has been decided that with immediate effect an exchange company will be allowed to effect outwards remittances on behalf of bonafide customers for permissible transactions only to the extent of 75 percent of the home remittances mobilised by the company during the preceding month.

In this respect, all exchange companies are required to report the above on the enclosed format by 5th day of every month to the SBP. The central bank said that failure to comply with the above instructions would attract severe regulatory action under related rules & regulations.

Copyright Business Recorder, 2008