Informed currency dealers said that importers spent $500 million in July to import gold, causing a serious dent to countrys weak dollar reserves.Dealers said that the governments decision to put a temporary ban on gold for one month would surely help stabilise exchange rate in favour of local currency and lift pressure on the open market.
The ministry of finance had started searching the importers data from Saturday which cautioned the gold importers and they left dollar buying. The ban and official activity to find responsible for this unwanted situation impacted positively in the first two days of trading. The difference in dollar prices of the two markets shrunk to Re1 from a peak of Rs3.5 per dollar just few days back.
However, the decline in the dollar spread was a 2-way act, the dollar fell in the open market but swelled in the inter-bank market.
The gold-related dollar price hike jolted the local currency market during a couple of months as serious lost of balance in demand and supply created panic in the market.
After increase in import duty on gold by India to cut its widening current account deficit, gold from Pakistan started moving in the Indian market through smuggling. The illegal business is highly lucrative for the gold smugglers through Pakistan as the import duty on gold is almost zero in the country.
We were confirmed by the ministry of finance that import of gold has been banned for a month and that the gold in import in pipeline will be cleared on Tuesday, said Malik Bostan, Chairman Exchange Companies of Pakistan.
He said the dollar was traded at Rs102.80 on Tuesday and it was a clear indication that the gold importers are out of currency market.
The gold importers, who are not provided dollars from banks, used to buy dollars from open market for import of gold. The gold import suddenly increased in Pakistan when India started increasing its import duty on gold up from 6 per cent to 8pc in this month. Smugglers found a lucrative channel to feed Indian market through Pakistan as there is no import duty on gold.
The gold import jumped from 280kg in February to 1400kg in July. The gold importers siphoned off dollars from open market and the $20 million market was facing a demand of $40m dollar per day. The demand inflated the dollar price and the local currency lost 4.5pc against US dollar in open market and 2.4pc in inter-bank in just 50 days.
The gap in dollar prices widened to Rs3.5 per dollar. Finance minister, State Bank and currency dealers held a meeting on Friday to stop this strange enemy, the gold, from destroying the already weakening exchange rate regime.
Officially $500m gold was imported in 26 days of July but what was imported illegally would be more,said Bostan.
The country is facing a grave problem of dollar reserves which kept the exchange rate under pressure at least for last 16 month. The inter-bank market is now started showing pressure as the dollar further appreciated and traded at Rs102 with slight fluctuations on Tuesday. It also helped to narrow the dollar price gap.
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