SBP curbing interbank trade to contain dollar shortage

KARACHI: Pakistan’s central bank is discouraging interbank trading due to a severe shortage of dollars that has pushed the rupee to post its worst weekly drop since 1998, Bloomberg reported on Monday.

State Bank of Pakistan (SBP) asked commercial lenders to manage import-payment requests from their own inflows, such as exporter accruals and remittances, sources said, asking not to be identified discussing private deliberations. If the bank still needs to borrow, it must seek permission from the monetary authority, they added.

The rupee fell about 8 percent last week, its biggest drop in more than two decades, as Pakistan’s foreign-exchange reserves are enough to cover less than two months of imports.

Even so, SBP acting Governor Murtaza Syed told Bloomberg the nation will comfortably meet its financing needs with an International Monetary Fund bailout on track.

Some banks are seeking permission from the SBP and providing dollars at a premium, which is raising costs for their clients, sources said.

Banks provided dollars for energy companies at rates of 238 rupees and 242 rupees to a dollar on July 20, about 8 percent higher than the official closing rate for the day, they added.

Banks that previously released overseas payments in a day are now taking more than a week, said Raheel Ahmed, chief executive officer at V.N. Lakhani and Co., a Karachi-based steel importer.

Pakistan has seen dollar payment pressure because of energy payments, Finance Minister Miftah Ismail said in a news briefing on July 21 in Islamabad. The trend will reverse with there being more dollar supply than demand next month, Ismail said.

The minister blamed the rupee's slide on political turmoil, saying he expects market jitters over the currency's sharp decline to subside soon.

Neither the government nor the IMF have said anything about the need for any further depreciation of the currency, though Pakistan recently adopted a market-based exchange rate under advice from the IMF under the economic reforms agenda.

The government officials said imports, which put pressure on the rupee, have been curbed and the current account deficit has been contained in the first 18 days of the new fiscal year this month, and pressure on the rupee would ease moving forward.