May 13, 2008	Tuesday	Jamadi-ul-Awwal 7, 1429

KARACHI, May 12: Agreements with multilateral donors will start pouring dollars in a few weeks that will settle the supply-demand dynamics in the market, said the State Bank of Pakistan on Monday.

SBP Governor Dr Shamshad Akhtar issued a statement which carries central bank’s efforts to stabilise exchange rate, explaining its position in the highly destabilised exchange rate scenario and blaming the speculative forces for a steep fall of the rupee against the US dollar.

The governor stressed that ‘we need fully to understand what is really happening’ behind the volatility in exchange.

“The inter-bank and kerb markets’ behaviour has not been in line with market fundamentals but reflects distortions created by trading and speculative practices which often do creep in under circumstances like this,” said the SBP governor. In discussions with multilateral agencies and other sources, there is a broad agreement for their support which should be able to bring in quick disbursement of foreign exchange inflows,” said the SBP.

The government is looking at other options to attract foreign inflows.

“We are optimistic that these inflows will start pouring in the next few weeks which should settle the supply and demand dynamics more sustainability in the markets,” the central bank said.

Pakistan is committed to exchange rate stability, said the SBP, adding there is no doubt that demand pressures have been high in the economy as manifested by the high fiscal and external current account deficits.

Since Pakistan has a managed floating exchange rate regime, the demand and supply of foreign currency sets the market exchange rate, explained the SBP.

Over the last few weeks, there has been a slowdown in inflows relative to outflows. Central bank has been supporting the oil payments and other obligations of the government as well as providing necessary support to the market as and when required. “The central bank is not in businesses of distorting markets by setting one level of exchange rate,” said the SBP, adding its interventions have to be calibrated in line with the level of volatility.

The SBP came under severe criticism by the newly-elected government and especially by the new high-ups in the ministry of finance holding the central bank responsible for the current destabilisation of exchange rate which eroded the rupee value against the greenback.

In just four months, rupee lost over 13 per cent value against the dollar, making it more difficult for the country to borrow from international market or purchase from the local market.

The country, which depends over 90 per cent on imported oil for its energy resources, has been facing double negative impact of the oil price-hike which reached $126 per barrel on Monday.

While the oil import bill soared to record high, the dollar itself became an all time high against Pakistani rupee, thus forcing Pakistan to borrow dollars, face record trade deficit and watch helplessly the melting reserves of foreign exchange.

The SBP said it has been working closely with the government to set in place a macroeconomic framework to ensure its sustainability.

“In addition, we are taking concrete steps to ensure effective supply of foreign inflows.”

“We have been and are ready to supply the necessary liquidity and lubrication to the markets through calibrated intervention,” said the SBP.

“We have enhanced our vigilance of the inter-bank and kerb markets. This vigilance is unearthing some issues which are being addressed,” it added.