Connect with us

Business

IMF range of 1.25% between interbank, kerb rates of dollar breached over last five days

Published

1 year ago

on

  • Difference ranges between 2% to 4% for last five working days.
  • Local currency in interbank market continues to slide.
  • IMF under SBA mandated spread not to be more than 1.25% in five consecutive business days on weekly basis.

ISLAMABAD: The International Monetary Fund (IMF) structural benchmark for keeping the difference between interbank and open market rates for US dollar against the Pakistani rupee within the band range of 1.25% had been breached at least for the last five working days, The News reported on Thursday.

The difference ranged between 2% to 4% in the last five consecutive days whereas the global lender might raise this issue, with the caretaker government, in the upcoming negotiations expected to be held at the end of October or early November this year.

The State Bank of Pakistan (SBP) has been unable to keep the difference in exchange rate within the desired limit of 1.25% so far despite witnessing depreciation in the exchange rate.

The clearance of stuck-up containers at ports, payment of dividends, and removal of other restrictions have increased pressures on the exchange rate. 

Secondly, the IMF condition has been resulting in dollarisation because the interbank market was following the open market so everyone knows that investing in the dollar would increase benefits.

This scribe sent out a question to the SBP two days ago inquiring whether the agreed benchmark with the IMF was breached in the last five working days as the gap between the interbank and open market ranged around 4%. What’s the view of the SBP and how you ensured monitoring and then report it back to the IMF on a weekly basis?

The SBP’s spokesperson replied on Wednesday and stated “We do not have any comment to offer”.

The IMF under Standby Arrangement (SBA) mandated spread not to be more than 1.25% in five consecutive business days on a weekly basis.

The local currency in the interbank market continues to slide as the rupee in the interbank market stood at Rs295 and in the open market around Rs305 so the difference stood at 3.4%. From January 1, 2023, to August 15, 2023, the rupee witnessed a devaluation of 22.32% against the US dollar.

Independent economists feared that episodes of exchange rate depreciation were continuously expected during the gradual return to a market-based exchange rate.

While the rupee experienced an appreciation following the IMF under SBA, this effect was a combination of an increase in market confidence and depreciation of the US dollar. Because the trend of depreciation since FY23 has been driven by a deterioration of economic fundamentals, the effect of increased market confidence was only temporary, and the rupee-dollar exchange rate has returned to pre-SBA levels.

The recent depreciation could be attributed to the return to a market-determined exchange rate and commitment of no formal or informal intervention in foreign exchange markets, SBP’s interventions to be guided by the overarching objective of increasing reserves to at least $6.4 billion (1 month of import cover) by end of December 2023 and reducing SBP’s net forward/swap position to below $4 billion.

The foreign exchange sales are not to be used to prevent a trend depreciation of the rupee driven by economic fundamentals.

The policy rate was jacked up to 22% on June 26th, 2023, and will be further adjusted until inflation and inflation expectations are on a clear downward trend. The real policy rate (i.e., policy rate adjusted for inflation) might be brought into positive territory.

The withdrawal of a December 2022 circular issued to banks on prioritization in providing FX for certain types of imports, and a gradual phase-out of other FX and import restrictions, including the limitations on advance payments for imports against letters of credits (LCs) and advance payments beyond a certain amount per invoice (without LC) for the import of eligible items, and multiple currency practices also increased pressures on the exchange rate.

Related Topics:
Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Business

It is anticipated that 150 ships would arrive at Gwadar by the year 2045, allowing the port to handle fifty percent of all imports.

Published

3 days ago

on

By

In an effort to strengthen the port’s economic importance, the Federal Government has made the decision to direct fifty percent of all imports from the public sector to Gwadar Port.

By taking this action, which has the backing of the Special Investment Facilitation Council, the port’s financial situation is going to be improved.

The Cabinet will be presented with a summary of imports through Gwadar by the Ministry of Maritime Affairs, which will take place after Prime Minister Shehbaz Sharif’s recent trip to China.

When the next Cabinet Meeting takes place, Ahsan Iqbal, the Federal Minister for Planning, Development, and Special Initiatives, will examine the Chinese offer for the Karachi to Hyderabad Section of the ML-1 Project and bring it to the Cabinet.

Company preparations for the Shanghai International Import Expo, which will take place in November 2024, are being made by the Board of Investment and the Ministry of Commerce of Pakistan.

One of the most important aspects of the China-Pakistan Economic Corridor is the Gwadar port, which serves as a significant commerce route connecting China, the Middle East, Africa, and Europe. At this time, the Gwadar Port is able to accommodate two huge ships, and by the year 2045, it is anticipated that it would be able to handle up to 150 ships.

By developing the Gwadar Port, regional connectivity would be improved, employment will be created, and international investment will be attracted.

Continue Reading

Business

The price of gold in Pakistan has experienced a significant surge.

Published

3 days ago

on

By

Gold prices in Pakistan surged significantly on Thursday following two consecutive days of decline, with the price per tola rising by Rs2,000 to reach Rs262,100. This increase was in accordance with the downward trend in international market values.

The All-Pakistan Gems and Jewellers Sarafa Association (APGJSA) reported that the price of 10 grams of 24-karat gold rose by Rs1,714, reaching Rs224,708.

Conversely, the world gold market experienced an upward trajectory. According to the APGJSA, the global price of gold surged to $2,503 per ounce following a $22 gain during the trading session.

The local market experienced a significant decline in silver prices, decreasing from Rs50 to Rs2,900 per tola after a prolonged period.

The local market’s gold prices remain subject to the ever-changing dynamics of the international market, as well as domestic considerations such as currency exchange rates and domestic demand.

Continue Reading

Business

The government has not met the deadline set by the International Monetary Fund (IMF) for the approval of a $7 billion loan.

Published

4 days ago

on

By

On Tuesday night, there were virtual talks between representatives of the Finance Ministry and the IMF delegation, with the main topics being external finance and income generation.

According to people familiar with the situation, no date has been set for the IMF’s Executive Board to approve the loan despite the ongoing negotiations.

Officials from the Finance Ministry informed the IMF mission about the government’s initiatives to get outside funding during the discussions. Updates on loan rollovers and fresh finance commitments from allies were included in this. According to sources, the IMF has received a schedule, and loan rollovers are expected to be finished by the end of next week.

The $12 billion in debt must be rolled over before the loan can be approved by the Executive Board, according to the IMF mission.

In the virtual discussions, representatives of the Federal Board of Revenue (FBR) conversed with the IMF team over the revenue deficit. The FBR must reach its revenue goals for this month, according to the IMF mission. As a result, the IMF has asked the FBR to submit a thorough strategy outlining how it will close the gap left by the shortfall and guarantee that revenue goals are reached.

Apart from the conversations on outside funding, there are rumors that the Finance Ministry is actively holding talks with commercial banks in order to obtain new funding. According to reports, negotiations are taking place with four distinct sources for commercial loans, which are anticipated to support the government’s overall financial plan.

Finance Minister Muhammad Aurangzeb disclosed on Tuesday that the IMF was in favor of introducing targeted subsidies. He said that qualifying recipients might receive these subsidies through the Benazir Income Support Programme (BISP).

In order to guarantee consistency, the minister announced that this week’s talks with chief ministers will focus on implementing a similar policy across the country. He was having a casual conversation in parliament with the journalists.

In response to queries about outside funding, Aurangzeb revealed a $2 billion deficit and said that talks to close this gap are progressing. He stressed how crucial it is to obtain business loans.

He went on, “At this point, there’s a need to secure an agreement for commercial loans, not exactly their issuance,” emphasizing that debt rollover negotiations are nearing their conclusion and doing well. The minister expected that these developments would shortly be reported to the governments of allied countries by relevant authorities.

Continue Reading

Trending