Pakistan's central bank is considering imposing a hefty cash margin on letters of credit (L/Cs) used to import luxury goods in its efforts to stem the decline of the rupee against the US dollar.

The rupee has been under considerable pressure, partly as a result of a plunging Pakistani stock market precipitated by Chinese market turmoil.

Cash margin

The State Bank of Pakistan (SBP) moved quickly in August to stem the rupee's depreciation by directing all commercial banks to stop forward booking of US dollars.

Now the central bank is reportedly mulling up to a 50 per cent cash margin on every L/C opened for luxury items.

Under pressure

Pressure on the rupee by China's stock market crisis has been compounded by a high demand for US dollars during the annual Haj season.

Thousands of Pakistani pilgrims travel to perform Haj and buy millions of US dollars, Saudi riyals and UAE dirhams to pay for their pilgrimages to Saudi Arabia, which are often accompanied by a shopping spree in the UAE during the journey there or back.

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