Open market set to remove cap on dollar rate from today.

KARACHI -- For the first time in the country's history, exchange companies have said there are removing a self-imposed cap on the selling and buying of dollars in the open market from Wednesday (today) - a system they said has created a black market offering better returns, stifled inflows from official channels and reduced remittances sent by Pakistanis working abroad.

The announcement was made after a detailed meeting of exchange companies from across the country on Tuesday. Their representatives will also meet top officials of the State Bank of Pakistan (SBP) - the regulator of the exchange companies - in the morning today to discuss the matter.

'We have decided to remove the cap on the dollar rate in the open market to bring the rate on a par with the grey market,' Malik Bostan, the chairman of the Exchange Companies Association of Pakistan (ECAP), said in a video message.

Removing the cap would help counter the grey market and improve the availability of dollars in the open market, he said, adding that sellers had disappeared due to this price difference.

Bankers believe that this decision of the open market might lead to a single exchange rate in the country and thus help fulfil the IMF's demand for a stable exchange rate.

Exchange companies to meet SBP officials; Bostan says decision to bring dollar rate on par with grey market

The exchange rate has been primarily hit hard by a steep decline in the central bank's foreign exchange reserves, which have shrunk to $4.6 billion. Currency experts say the rupee has been falling 'despite being managed' by the SBP.

Amid a shortage of dollars, the gap between its rates in the interbank and open markets has significantly widened, drastically hurting the economy and diverting remittances from the legal banking channel to the grey market, which has been offering the dollar at Rs270 against Rs30 in the interbank market and Rs240 in the open market.

The wide difference has also hit the remittances sent by Pakistanis working abroad, as they get much high rates via informal money transfer channels like hawala.

Some experts have hinted that the shortage of dollars could cause rationing of petrol and diesel in the next two to three months, ultimately hitting the trade and industry and even the agricultural sector, which needs diesel during the...