SBP stands ready to check forex market’s volatility

KARACHI: The central bank on Monday expressed its resolve to check volatility in the foreign exchange market, dispelling an impression of rupee freefall without any intervention, as the rupee lost another 1.2 percent against the dollar in the interbank market.

“The SBP (State Bank of Pakistan) will continue to closely monitor the situation and stands ready to take measures, as needed, to address any unwarranted volatility in the foreign exchange market,” the central bank said in a statement.

The SBP said the exchange rate came under pressure in the last few days. “In SBP’s view, the recent movement in the exchange rate reflects the continuing resolution of accumulated imbalances of the past and some role of supply and demand factors.”

The rupee weakened by 1.20 percent or Rs1.78 on Monday to close at 149.65/dollar in the interbank market. It closed at 147.87 against the greenback on Friday. The rupee traded flat at 151 versus the dollar in the open market deals.

The rupee continued to lose its value against the US dollar in interbank and open markets. The local currency has lost more than 35 percent since January 2018. The SBP said the exchange rate has depreciated by 5.93 percent to Rs149.65 per dollar, at the close of 20th May 2019 since March, “reflecting a combination of underlying macroeconomic factors and market sentiment considerations”.

Governor SBP Reza Baqir earlier vowed that it wouldn’t allow an abrupt depreciation in foreign exchange rate. Baqir however told a recent meeting presided over by the Prime Minister Imran Khan that demand-supply mechanism would continue to play its role in determining the rupee-dollar parity.

Last week, Pakistan and an International Monetary Fund’s (IMF) reached a staff level agreement over a six billion dollars worth of extended fund facility program – the 13th one since 1980s. The SBP said the program was designed to restore macroeconomic stability and support sustainable economic growth, and “is expected to unlock considerable additional external financing”.

“The current level of reserves is below standard adequacy levels (equal to three months of imports cover),” it said.

Though the loan agreement is yet to get a nod from the IMF bosses, the rupee started to accelerate its downward trend since the announcement of the agreement. The IMF linked the loan approval to prior actions that include free-floating exchange rate and that caused a debate over rupee devaluation as a result of the condition; although the government and the central bank continued to renounce any such link.

Falling rupee led to support exports-oriented sector, while imports were also compressed, underpinning the government’s measures to bolster external account position.

Bankers believed that the battered rupee would take further blows in the coming weeks. The SBP has agreed with the IMF to devalue the currency by 155 till June, they said.