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SBP orders banks to report FX requirements of $500,000 and above for overseas purchases

September 25, 2021

KARACHI: The State Bank of Pakistan (SBP) issued new regulations, requiring banks to report $500,000 and above future foreign currency requirements for overseas buying, apparently in a move to step up monitoring of money flows and to make rupee less volatile.

The SBP issued new guidelines making mandatory for banks to submit information related to their all forthcoming imports payments of $500,000 and above for the next five days.

Earlier, the banks submit information of their expected payments exceeding $1 million. Prior to the new rules, banks were submitting details of imports arriving in two days.

“As part of the transition to a flexible exchange rate system, SBP has been encouraging banks to improve their FX liquidity forecasting and planning in the context of their upcoming commercial transactions, including payments,” said Abid Qamar, the chief spokesman for the SBP in a brief statement in response to The News query.

"At the same time, the SBP is also making concerted efforts to strengthen its own internal forecasting of market flows and liquidity, which depends on the provision of good quality and high frequency data."

Qamar said the SBP has recently strengthened the existing data reporting mechanism to further sharpen its market liquidity projections

“The purpose of the reporting is simply to encourage banks to strengthen their forecasting and planning, and for SBP to have a broader view of near-term FX demand and supply."

He said such reporting, and the better liquidity forecasting that it facilitates, supports the smooth functioning of a flexible and market-determined exchange rate system.

Dollar demand has been swelling and piling pressure on rupee in recent months on higher import bill and outflow of dollars to Afghanistan following a regime change in the neighbouring country.

Higher trade deficit on booming imports has widened the current account deficit to a whopping 81 percent in August to $1.476 billion. In response, the rupee depreciated by 4.1 percent since July.

Dr Reza Baqir, governor SBP, however told analysts at a monetary policy briefing that the current account deficit forecast is slightly elevated but remains within the earlier forecast of 2-3 percent of GDP. It is too soon to revise CAD assumption as results of exchange rate is yet to be seen.

The government and the SBP both have stepped up efforts to control import growth and the current account deficit. The SBP hiked policy rate by 25 basis points to 7.25 percent earlier this week.

The ministry of Industries has also proposed measures to check imports on luxuary vehcles. The government is planning to impose a 50 percent regulatory duty on import of electric vehicles.

Regulatory duty on Hybrid vehicles to be increased from 15 percent to 50 percent on 1,501 cc to 1,800 cc. These interventions will discourage import of vehicles and help improve the current account gap.