SBP comes clean about exchange rate policy

ISLAMABAD: The State Bank Governor Dr Raza Baqir opened up on Pakistan’s exchange rate policy during a press conference at the central bank’s office in Karachi on Monday.
Addressing a press conference here, the SBP Governor remarked that the central bank will neither fix the exchange rate nor completely leave it to market forces. “We will keep a close eye on its movement and intervene to avoid any speculative movement and volatility,” he said.
Dr. Reza Baqir has said government’s economic team is bringing economic stability in the country. He said economic plan of the government envisages stabilizing the situation which will lead to higher and inclusive growth, passing benefits to middle and lower classes.
Governor State Bank said our external deficit and fiscal deficit are being addressed according to our economic plan.
Dr Baqir termed the regime to be ‘market-based exchange rate system’. This policy is working well because it has helped us reduce our external deficit as we have seen in recent months from January to March. He clarified that neither a free-floating nor a fixed rate policy suits Pakistan. This is why the central bank will intervene whenever there is volatility, but it will not suppress the forces of demand and supply which set the direction of dollar rates.
Last week, the dollar rose sharply creating panic in the market, especially among the trading community who make import payments in dollars. Explaining this, the governor said that before Eid Pakistanis sent remittances so the supply of dollar increased, which is why the dollar rate didn’t increase. Since then, the dollar has been going up because many companies have been making payments ahead of closing their financial accounts for the year ending June 30. The dollar outflow increased which is why the rates increased.
When asked whether the dollar will rise further, he said that only the forces of demand and supply can predict that and not the central bank.
On the fair value of the dollar, he said that we will have to wait for the IMF’s next report which will reveal the real exchange rate. The real exchange rate is used to determine the fair value of the dollar against the rupee.
Speaking about the IMF’s bailout package, he said that it will help in reducing the country’s deficit and open up other financing options. It tells the world that our economic reforms programme is supported by the international community, Dr Baqir added.
The State Bank has met all the pre-requisites for the IMF programme. The central bank representatives will hold a board meeting with IMF officials on July 3. – NNI

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