The International Monetary Fund (IMF) has stipulated a condition on the parity between the open market and interbank rate for Pakistani Rupee as part of the recent Stand-By Agreement.
Pakistan has been facing the sever problem of diminishing foreign exchange reserves for the last couple of years. There were a lot of reasons for it including increasing imports and decreasing exports, lowering the foreign remittances and the big parity between the interbank currency exchange rate and rates in open market.
The open market rates are determined by market forces which means the demand and supply are two main factors on the basis of which the open market rates are fixed. Whereas the official or interbank rates are fixed by the buying and selling currencies from each other.
Now the International Monetary Fund (IMF) has stipulated a condition on the parity between the open market and interbank rate for Pakistani Rupee as part of the recent Stand-By Agreement.
The interbank rate is usually accessible to the large and highly creditworthy financial institutions. The open market rate is the rate which customer can expect to receive when exchanging currency at a local currency exchange or other retail foreign exchange provider.
According to the financial experts, this is not the new demand of IMF.
There were rumors that the International lender wanted the spread between the two rates to be 2 percent but now it has moved the difference to just 1.25 percent.
To some economists, IMF does not set absolute levels regarding parity, the introduction of policy guidelines and measures aim to ensure consistent stability in foreign exchange market. The objective is to get a reflective parity which supports and protects the overall reserves position.
Going by this condition of IMF is not a difficult task. Both the rates may be published on regular basis. In this way, IMF can scrutinize those rates for any five business days and in case there is any deviation, it can communicate easily.