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)
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@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.
@ 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..
According to the staff report, the State Bank spent over three BILLION dollars propping up the rupee during the run-up to the elections and through the elections.
In any economy, the exchange rate will reflect the economy's "fundamentals". It is pretty self-evident.
With rapidly deteriorating fundamentals (large internal and external deficits that we cannot finance), speculators have a field-day. They can place one-way bets.
@Xnain: If you pay attention to Central Bank & FX Markets chatter, the USD is being phased out.
@abdussamad: It is not, SBP can manage the market but can't dictate it. What SBP could do when we had a massive PKR devaluation in early 2008? A country running a twin deficit is always exposed to devaluation. It can hold the inevitable only to the extent the ample FX reserves are available.As soon as the reserves deplete, the vigorous devaluation occurs aided by both fundamentals but in such a situation, enhanced by speculation and dollarization. Its just like one has a choice of selecting the death either quickly by shooting one's self or by a slow poison. Unless the problem of twin deficit is not resolved Rupee will always remain a fair bet for depreciation.
@Ashkenazi: " you nodded to debased PKR’s value in relation to XDR" ???????????????????? Whats that suppose to mean? USDPKR is the target policy rate, not the XDRPKR.
Mr.Governor...stand up and take the blame. I am still amazed that about two month back interest rates were decreased and now they have been increased.by SBP
Please don't insult our intellect. You didn't give what IMF needed but you needed the IMF loan so in return they you nodded to debased PKR's value in relation to XDR. Market forces theory? What a malarkey.
@Alee Raza Maher: QE results in depreciation of the USD not appreciation. Expectations that QE will be reduced resulted in appreciation very recently. That is now being reversed because the fed will continue to create new money for the time being.
Enough of the blame game. Clear Transparent Policy, Strategy and Efficient Effective Aciton please...
Can we capitalize on the Weakness of PKR to push exports and incentivise Overseas Pakistanis ?
Dear Guys recently i have heard that U.S Fed continued purchasing Bonds at 85 million per month however the 3rd QE had a great impact on world economy as dollar appreciated against many countries.so my question is that how QE will appreciate its currency,as QE reduces intrest rates which means less FDI will be attracted and there will be more demand for Imports? :/
"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"
LOL this is funny. The biggest force in the market is the SBP and it has been buying dollars on the orders of the IMF. Last financial year it was foolishly selling dollars to shore up the rupee which meant that rupee depreciation was limited to less than 6% in that year. Now it is doing the opposite because it has run out of dollars. So, yeah, expect 114 at least before the end of the financial year.