SBP Intervention Keeps Rupee Stable Against Dollar, Bloomberg Reports

Despite tall claims by the government regarding economic prosperity, the destabilizing currency has continued to remain a cause of interminable concern. The rupee has seen some respite due to recent intervention by State Bank of Pakistan (SBP). The government has also been actively intervening to prevent the rupee from falling further against dollar. According to a Bloomberg report, the two have been intervening continuously during the last few months to keep the rupee afloat against the green back. Although, SBP and the government have categorically denied to intervene in the currency market and are claiming that rupee is trading in a free market; the recent stability of rupee against dollar is suggesting otherwise.

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Bloomberg report states that banks have refused to trade the rupee above 104.87 mark against dollar. If any bank tries to trade it above this benchmark, it receives a call from SBP. However, the sources have denied to provide any official reference for this information.

Rising deficits putting excessive pressure on debt payments

Although Pakistan is considered a promising economy in South Asia, but ever rising deficits have reached a massive $7.3 billion during July-April 2016-17. As a result, it has put pressure on foreign payments. Additionally, country’s foreign exchange reserves have fallen to 15% which is portraying a weak economic outlook.

Quick Read: Pakistan faces a 7% cut down in foreign remittances in April

The Bloomberg report highlighted that SBP is claiming that rupee is being traded in a free market working on the dynamics of demand and supply. But the fact that rupee is the only currency that has appreciated against dollar by 0.5% since April 2014 versus the basket of 13 currencies compiled by Bloomberg is making experts skeptical about this claim.

The prime reason behind the interventions of authorities is to keep rupee stable. Further depreciation will put extensive pressure on external payments. The Bloomberg report also mentioned that Pakistan has taken massive foreign loans under the China-Pakistan Economic Corridor (CPEC) umbrella. Moreover, further deprecation of rupee will make the debt payments highly inflated.

This image is adversely affecting foreign investors’ confidence as they have sold stocks worth Rs232 million in Pakistan Stock Exchange (PSX). Further adding to the adversity, MSCI has reclassified Pakistan from frontier to emerging market.

Read More: Bloomberg calls Pakistan to be a steady economy

Pakistan recorded its highest ever trade deficit which reached $3.2 billion in April this year. Although SBP has been trying hard to send a message of being an independent regulator by forming South Asia’s first monetary policy committee during the tenure of the previous governor, but even that failed to remove the stigma from Pakistan of being a fragile economy.

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