SBP net FX intervention in interbank market reaches $3.8bn in five months

KARACHI: Pakistan’s central bank purchased $3.8 billion from the interbank market between June and October 2024 to boost its foreign exchange reserves and manage debt repayments.

In October, the State Bank of Pakistan (SBP) bought $1.026 billion from the currency market. According to Arif Habib Limited (AHL), a brokerage house citing data from the SBP, this strategic action (SBP’s net FX interventions) resulted in a $2.1 billion increase in the country’s foreign exchange reserves, with the remaining funds allocated towards managing the nation’s debt repayments.

The SBP’s continuous foreign exchange interventions, attributed to a stable currency, alongside adequate dollar liquidity in the market and an increase in remittances, supported foreign exchange reserves.

The SBP’s reserves increased from $9.39 billion in June to $11.203 billion in October. However, reserves saw a decline in December and January due to significant external debt repayments. The country made foreign debt repayments totalling nearly $2.4 billion during these months.

As of January 24, the SBP’s reserves stood at $11.37 billion, enough to cover over two months of imports. During the July-December period of FY25, remittances rose to $17.8 billion, representing a 33 per cent increase compared to the same period the previous year. The SBP projects total remittance inflows to reach $35 billion for this fiscal year, up from $30.3 billion in FY24.

The SBP indicates that while net financial inflows were limited in the first half of FY25, they are expected to improve going forward, as a significant portion of official debt repayments has already been made. Therefore, the improved outlook for the current account, along with the anticipated realisation of planned financial inflows, is likely to increase reserves beyond $13 billion by June 2025.

Out of $26.1 billion in Pakistan’s external debt repayments for FY25, the net amount available after rollover/refinance adjustments is $10 billion, with $6.4 billion already paid. For the remainder of FY25, the net repayable amount is $3.6 billion. The SBP expects that inflows from commercial banks and bilateral sources in the second half of this fiscal year will likely offset the outflows.