Underlying his demand was a threat that the central bank could announce a buying and selling band for the kerb - or open - market that would limit rates to only 1.0 to 1.5 Rupees above the interbank market rate, the sources said. The government would also bar diplomats, banks and corporations from selling foreign currency in the kerb market unless the rupee appreciated, Dar was quoted as saying.

The meeting was held at the State (central) Bank of Pakistan a day after Dar threatened to launch a crackdown against currency speculation in the kerb market and said the government could even close down the parallel trade.The government was eager to avoid the situation it faced last year when the wide difference between the official rate and the kerb rate had a severe impact on inward remittances and led to overinvoicing of imports, the sources said.

Bankers said the widening difference between the kerb and the interbank rate could send transactions underground and affect foreign exchange inflows. A committee would be formed of central bank officials, moneychangers, traders and banks to formulate guidelines to regulate the kerb market, Malik Bostan, president of the Forex Association of Pakistan told Reuters after the meeting.

"The government will also introduce laws to strengthen regulation," Bostan quoted Dar as saying. The kerb market is run by money changers who operate under central bank licences. Bostan said he had assured Dar that the association would try to bring down the rate next week. "Our next target is 53/53.50 Rupees to a dollar," he said.

In the kerb market, the rupee was at 54 rupees to the dollar on Saturday, slightly stronger than 54.10 rupees on Friday. The black market rate was even weaker, at 55 Rupees, because of fears of a war between India and Pakistan over the disputed Kashmir region,currency dealers said. Unlicensed traders run the black market, but some licensed money changers make under-the-counter deals at similar higher rates. The interbank floating rate, which was made the effective exchange rate in May, was at 51.50 Rupees. In May, Pakistan abolished a dual exchange rate introduced last July to withstand the effects of international sanctions imposed for Islamabad's nuclear tests in May last year, and replaced it with a market-based interbank rate. Major problems emerged in the economy after Pakistan conducted its nuclear tests in May, 1998, and introduced capital controls to conserve foreign currency to mitigate the effects of Western sanctions.