Forex firms intend to infuse $1bln in interbank for rupee support

KARACHI: Foreign exchange companies on Tuesday said they could give one billion dollars to the government within next three months to help it bolster foreign exchange reserves and stabilise the faltering rupee.

Malik Bostan, chairman of Exchange Companies Association of Pakistan (ECAP) told the central bank’s officials at a meeting that the forex companies would try to give one billion dollars to the government through banks within the next three months.

“We have already surrendered $300 million to the interbank market since May 15,” Bostan said at a meeting with the SBP Executive Director Irfan Ali Shah. Other ECAP’s members also attended the meeting.

The State Bank of Pakistan (SBP) said it is determined not to leave the rupee absolutely to the market forces, restoring confidence in the frightened currency market with the rupee losing one third of its value in the past 12 months.

Governor SBP Reza Baqir said the central bank keeps close eye on the currency market and if there is an excessive volatility it would intervene to help out.

“Neither fixed not free-float regime of exchange rate is good for Pakistan, as former can lead to external imbalances and latter can lead to manipulation,” Baqir said addressing a presser on Monday to highlight the central bank’s focus on market-based exchange system. The association’s chairman said the exchange companies accumulated foreign reserves with the help of people who are coming out in droves to sell their Saudi riyals, dirham and US dollars. Consequently, the open market is supplying foreign exchange reserves to banks and that is causing increase in dollars supply day by day. He expected the rupee to rebound to 140 / dollar with the public support.

ECAP official hoped that the International Monetary Fund (IMF) would finalise $6 billion loan agreement deal with Pakistan. The IMF’s executive board is scheduled to meet on July 3 to announce its decision on the bailout package for Pakistan. It will pave the way for loan agreements of $3 billion with the Asian Development Bank and $2 billion with the World Bank and Islamic Development Bank by next month. Three years oil differed payment deal of $9 billion from Saudi Arab would commence from July 1, he added.

“Within next three months, $12 billion of financial assistance agreements will be finalised,” the currency dealer said. “The foreign inflows will boost the country’s foreign reserves, strengthen the rupee and contain dollars demand in the interbank market.”

Bostan urged the government to impose temporary ban on luxury imports. “If the government immediately takes this decision, dollar demand will be curtailed to a great extent.”

ECAP chairman said non-dollar bilateral trade with China, Russia and central Asia is likely to save an estimated $20 billion flied out on imports. “Currency swap deals with the countries would bring back the rupee to 125 per dollar,” he said, referring to the Prime Minister Imran Khan’s advice of bilateral trade in local currency at the Shanghai Cooperation Organization’s event last week in Kyrgyzstan. Bostan ruled out likelihood of Pakistan’s default on foreign debt obligations.