Curbs on Hawala and Hundi playing major role
A dollar can now be bought for Rs156.60 in the open market as the greenback rate dropped to a one-year low on Tuesday. The last time it traded below Rs157 was on March 10, 2020.
“The State Bank took several initiatives such as Roshan Digital Accounts last year during the pandemic,” said Zafar Paracha, the secretary of the Exchange Companies Association of Pakistan. “The dropping rate shows those initiatives have been bearing fruits.”
Inward remittances, the foreign exchange overseas Pakistanis send to the country, have been strong, he said. These remittances stood at $18.7 billion in the first eight months of FY2021 (July to February), which was 24% higher than the same period of the previous year.
Last month, the State Bank of Pakistan announced that remittances sent through Roshan Digital Accounts had crossed $500 million.
Paracha said the Naya Pakistan Certificate offers a lucrative 7% interest rate, which was increasing the flow of dollars into the country.
Pakistan’s current account has been in the surplus of nearly $1 billion in the first seven months of FY2021. It was in deficit of $2.5 billion during the same period last year.
Paracha said the initiatives taken on the recommendation of the Financial Action Task Force have reduced the dollar’s illegal movement in and out of the country. “Dollars have now been brought in through the banking channel, which is strengthening the rupee against the dollar,” he said.
It has curtailed the hawala and hundi transactions too, Paracha said. “To what I see from the direction of things, it won’t be surprising for me if our remittances doubled in the next three years,” he said.
Paracha believed that the country would soon be removed from the FATF grey list.
“I believe Pakistan has implemented all FATF recommendations,” he said. “The situation in Pakistan is much better than many other countries that are not on the FATF grey list. I believe we will soon be getting out of the list now.”
BMA Capital Executive Director Saad Hashmi said the inflows through Roshan Digital Accounts and stable foreign exchange reserves have been the reason behind the decreasing dollar rate. Foreign exchange reserves with the State Bank are standing in the vicinity of $13 billion for many weeks.
“The market sentiment is also positive regarding the rupee and people are investing in stocks now,” Hashmi said.
When people expect the dollar rate to increase, some of them start buying greenbacks with an expectation to make money when it goes up. But when the expectations are that the dollar rate would fall or remain stable, people start to invest elsewhere, such as stocks.
“The dollar rate is now market-driven and the expectations are that it will stay in the range of Rs155 and Rs165,” Hashmi said.