KARACHI: State Bank of Pakistan has termed movement in the interbank exchange rate an “adjustment” in the backdrop of increasing exports, foreign direct investment (FDI) & workers’ remittances and pressure on foreign exchange reserves due to current account deficit and depleting reserves.
On Friday, Pak Rupee depreciated by 2.6 percent against dollar in interbank market, from Rs 105.55 to Rs 109.50 and closed at Rs 107. Almost half way into the current fiscal year, Pakistan’s economy is well positioned to achieve the real GDP growth target of 6 percent in 2017-18. The positive outlook is supported by a broad-based 8.4% growth in large scale manufacturing during the first quarter of the year, and encouraging assessment of major crops, while services are likely to benefit from the positive spillovers of the growing commodity sector, the bank said.
The central bank said that exports recorded a double-digit growth during Jul-Oct FY18; foreign direct investment reached a nine-year high; and workers’ remittances posted a modest growth. However, the continuation of high growth in imports led to a widening of current account deficit, and consequently to depletion in country’s foreign exchange reserves. These pressures have persisted leading to the adjustment in inter-bank exchange rate. This movement in the exchange rate is based on demand and supply of foreign exchange in interbank market.
Strong growth in private sector credit, particularly in fixed investment loans, also reflects the dynamism in the real economic activity. Moreover, inflation continues to remain low and stable, and stood at 3.6 percent during the first five months of the year.
The SBP was of the view that the market-driven adjustment in exchange rate will contain the imbalance in external account and sustain higher growth trajectory. The exchange rate will continue to reflect the demand and supply conditions; and SBP stands ready to intervene, in case speculative and/or momentary pressures emerge, for smooth functioning of the foreign exchange markets, the bank said.
Published in Daily Times, December 9th 2017.