Heavy arbitraging to compel CB’s intervention
The Central Bank is seriously considering intervening in the open market operations amidst heavy arbitraging by both the formal and informal financial sectors in the wake of the foreign exchange crisis.
Despite the Central Bank’s published exchange rate of Rs. 200 per US dollar the banks are selling dollars above this rate, an importer told the Business Times on Friday. “There is no single dollar in any bank in the country to buy at that rate and banks are now buying from exporters at Rs. 210 and selling to the importers at 214/215 levels,” he said.
This is despite a warning letter sent by the Central Bank to maintain the US dollar exchange rate at 202 to 204 levels. “The state banks are ignoring the regulator’s request and are selling the US dollar at Rs. 210. The Central Bank is definitely aware of it, but they have resorted to turning a blind eye because they don’t have an answer to the current issue,” a banker told the Business Times. Another senior banker agreed that despite the letter from the regulator, commercial banks are manipulating the currency fluctuations for a better yield.
An analyst confirmed this saying, state banks are minting money at this point. “They are buying the dollar at Rs. 199 from small people – migrant workers etc and selling to importers at Rs. 208 and 210.”
Meanwhile in the black market a US dollar is sold at an insane Rs. 257, a second analyst told the Business Times. “It hit this level on Thursday and on Friday returned to Rs. 240.”
An economist pointed out that the Central Bank cannot hold on in this situation and needs to ‘do something’. “The government should manage the float from a further depreciation of the rupee.”
So far, $100 million has been brought in by DFCC and NDB banks while a $50 million funding facility for small and medium enterprises was received by the Commercial Bank this week. With these facilities the regulator will sell these dollars in the market, the economist said.