SBP blames market forces for rupee depreciation, not IMF

Governor says currency to become stable as central bank shores up reserves.


Our Correspondent September 19, 2013
Governor State Bank Says the central bank os expecting stability in the exchange rate as the first tranche of the $6.64 billion IMF loan was received by Pakistan, and it will be receiving the second one soon. PHOTO: MOHAMMAD NOMAN/EXPRESS

LAHORE: The central bank was monitoring (all) dollar transactions and was fully aware of falling rupee, which was only due to the market forces, not the loan package approved by the International Monetary Fund, said State Bank of Pakistan (SBP) Governor Yaseen Anwar.

While addressing the seventh Shamrock conference on small and medium enterprises (SMEs), Anwar said that the central bank was expecting stability in the exchange rate as the first tranche of the $6.64 billion IMF loan was received by Pakistan, and it will be receiving the second one soon.

Besides the IMF’s first tranche, the country had received $133 million from the Islamic Development Bank (IDB) and was expecting to secure more finances from other institutions. “This will boost our reserves, hence providing the rupee with some stability,” Anwar said.

The rupee has devalued the least against the dollar compared to currencies of other countries, who observed depreciation in double-digits like Brazil, Turkey and South Africa, the governor said. The rupee only lost 5% of its value in the same time period, he added.

The currency swap agreement with China helped Pakistan save $1.6 billion, and that is why Islamabad will negotiate a currency swap agreement with other countries like Turkey. These agreements will ease the pressure on our reserves, Anwar said.

Explaining why the SBP decided to increase the interest rates, Anwar said that the inflation once again hit double-digits which forced the central bank to go for interest rate hike. “Once inflation falls, we will cut the discount rate.”

Appreciating the role of SMEs, the SBP governor said that local businesses had the potential to serve as the engine of growth for the economy by providing linkages to the corporate sector, generating employment and alleviating poverty.

However, private credit has been declining over the past few years, and Anwar believes the key reason for this was the banking sector’s risk-averse approach towards the sector.

“And why banks are reluctant to lend to the private sector is due to a high risk perception, high transaction costs and higher chance of defaulting on loans,” the SBP governor said.

Published in The Express Tribune, September 20th,  2013.

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COMMENTS (12)

whitesky | 10 years ago | Reply

@Alee Raza Maher: : Sir, Federal Reserve is buying bond of $85 Billion a month and not $85 million as stated by you. . In 3rd quarter USD appreciated because Ben Barnake had announced that after May 22 stimulus program of buying this $85 bn will be stopped ( as there has been indication of sufficient economic growth in USA) meaning thereby inflow of USD in the market will be reduced . Also the FDI which has been placed in the emerging market will fly back to US causing shortage of USD in these market . This led to devaluation of PKR / INR and currencies of many other countries. Once FED Reserve announced continuation of stimulus program of $85 bn per month, flight of foreign investment stopped and PKR /INR / other currencies appreciated.

sanity | 10 years ago | Reply

@ Humayun

Yes.. We can.. But what will we export?.. We hardly manufacture anything.. It is paksitan.. only countries with manufacturing exports of high volume like japan and china can benefit from this.. Sadly not us.. Poor country..

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