State Bank’s record $4.2 billion purchase from the market

Islamabad: The central bank has bought a record $4.2 billion from the market so far this fiscal year, which is half of the country’s official foreign exchange reserves and more than the size of the International Monetary Fund’s bailout package.

While the central bank’s intervention has kept foreign exchange reserves stable at $8 billion despite heavy debt repayments, it has also played an important role in keeping the value of the rupee as low as Rs 278 against the dollar.

According to analysts, in the absence of these interventions, the value should have been less than 250 rupees against the dollar. The central bank refrains from answering questions about buying and selling of foreign currency. It concealed massive intervention in the interbank market involving transactions of more than 1.1 trillion rupees to buy at least $4.2 billion. It is rare that central bank purchases exceed the size of the $3 billion IMF program.

One of the reasons for going into the IMF program was to obtain additional loans and increase reserves, but so far the country has received foreign loans of $9.7 billion to cover foreign debt repayments and current account deficits. were insufficient.

Ashfaq Yusuf Tola, a chartered accountant and former chairman of the Revenue and Resource Mobilization Commission, said that due to the central bank’s purchases, the rupee depreciated by 40 to 45 rupees against the dollar, adding at least 5 percent to inflation. The percentage increased.

He said that it is in the interest of the government to bring the real parity of the rupee to the dollar to Rs 235 by ending market intervention. A 5% reduction in the inflation rate will also help to reduce the interest rate, but the counter argument of the authorities is that if the central bank had not bought dollars, the foreign exchange reserves would have decreased to 3.5 billion dollars, which There would have been more inflation.

Ashfaq Tola said that the depreciation of the rupee to Rs 278 means that exporters are getting Rs 35 to Rs 45 more for every dollar of their export earnings. Pakistan is once again worth at least $6 billion. The new IMF program seeks and central bank purchases equal to 70 percent of the three-year program volume in less than 10 months.

One of the reasons for the central bank’s intervention in the market was the failure of the Ministry of Finance to ensure the inflow of $6 billion due to Eurobonds and foreign trade loans.

According to data released by the Economic Affairs Division and the Central Bank, during the first nine months of the fiscal year, Pakistan received foreign loans of $9.7 billion, which is a little more than 50 percent of the annual budget estimate.

The Real Effective Exchange Rate (REER), a measure of a currency’s value against a weighted average of several foreign currencies, rose to 104.07 in March 2024, Pakistani officials said, indicating that The rupee did not depreciate.