Exchange rate cap.

THE 'management' of the exchange rate by the State Bank, allegedly at the behest of the government, to ward off steeper rupee devaluation due to the dollar crunch has led to many unforeseen complications in the foreign exchange market in recent months. Initially, we saw the gap between the interbank and open market dollar-rupee rate widen to unprecedented levels, which soon resulted in the creation of a black or grey market offering a much higher rate than the one given by the money exchange companies. No wonder, the dollar vanished from the open market as exchange firms were unable to attract sellers of the currency - again, because of what they called a 'voluntary' cap on the dollar price to help ease pressure on the rupee. Pakistanis living abroad started rerouting their remittances through the black market for a better, higher rate. Thus, when on Tuesday, the Exchange Companies Association of Pakistan announced the removal of the 'voluntary' cap on the open market dollar-rupee rate, it was seen as part of the bank's effort to again ensure a market-based exchange rate, as demanded by the IMF for resumption of its stalled loan programme and to eliminate the black market.

But old habits die hard. Very quickly...

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