The State Bank has lifted ban on forward cover for importers after three years. The move could impact upon exchange rate and the currency experts believe dollar may appreciate. The SBP announced on Tuesday through a circular that in order to meet the genuine needs of importers, it has decided to restore the Forward Cover Facility against imports with immediate effect. Under the forward cover facility importers are allowed to book dollars for their future payment, while the sellers charge higher rate as a premium for hedging. The SBP had banned this facility through a circular on July 8, 2008, which said the forward booking against all types of imports was temporarily suspended. The ban was imposed since the demand of dollar was, too, high and the forward booking was loaded with very high premium, which prompted speculative forces to get maximum benefit out of the situation. It seriously dented the exchange rate stability. The circular provides several terms and conditions for the restoration of forward cover facility. It said forward cover facility will be made available to importers against the Letter of Credit (L/C) only. No forward cover facility will be provided for a period of less than one month. Rollover in those cases where import payment is not made in accordance with the schedule will be allowed subject to the condition that the rollover is not less than one month. It said that banks will ensure that the facility is being availed for genuine import transaction and that the �importers do not hedge more than the underlying exposure.� �If during an SBP inspection or at any point of time, it is found that the said facility was misused for and not against genuine transactions, action will be taken by SBP under Foreign Exchange Regulation Act, 1947, against the concerned bank and the importer,� said the SBP circular. As per the existing regulations, all forward contracts against which the LCs are cancelled are required to be closed out on maturity and differential is settled between the importer and the bank. �However, all such cases, where underlying LCs were cancelled, will be submitted to SBP on maturity with full details, reasons and justification, for further action by SBP,� said the circular. When asked what could be the impact of lifting of ban on forward cover facility, a currency expert Atif Ahmed said the decision was taken in the wake of stable exchange rate and improved balance of payment on external front. But he said the decision could create some room for dollar to appreciate against the rupee. The exchange rate has been stable for more than year. He said any significant change is not possible on dollar/rupee parity despite a fear that greenback could gain some weight against rupee. Importers can book millions of dollars as forward cover facility, which means the market might see higher demand of dollars. Currency dealers said the country is in a much better position on external fronts because of record foreign exchange reserves of over $17.6 billion, negligible current account deficit and record remittances. �I don�t see any significant change in exchange rate after the restoration of forward cover facility,� said an importer and textile-based manufacturer.
By: Dawn News