KARACHI: Foreign exchange reserves of the State Bank of Pakistan have been declining due to external debt servicing and no fresh inflow during the last two months.

The State Bank reported on Friday that reserves held by the bank declined by $89 million to $9.188 billion during the week ended on Aug 8 as against $ 9.277bn in the previous week. Total reserves of the country stood at $14.264bn. Net foreign reserves held by banks stood at $5.076bn.

The SBP reserves are expected to fall further as the bank paid about $147m to the International Monetary Fund (IMF) this week.

If no inflow is received by the Central Bank this week, reserves may fall below $9bn that may add volatility to the currency market which is already feeling the heat of political uncertainty.

During the week ending on Wednesday, the dollar rose to four-month high and crossed Rs100.

“The dollar remained around Rs100 in the inter-bank market on Friday,” said Atif Ahmed, a currency dealer.

He said there is another repayment to donors next week for which the State Bank has been buying dollars from banks.

State Bank’s Acting Governor Saeed Ahmed said on Thursday that banks have been directed to ensure smooth supply of dollars in the market. He said the dollar got higher prices due to supply and demand gap. He said there was a need to curb speculators.

Despite hefty payments for oil imports, reserves of scheduled banks remained intact. This week around $100m was paid for oil payments.

Currency dealers in the inter-bank market said the dollar may see a decline by mid of next week as they believe that after opening of New York on Tuesday, higher inflows are expected.

Pakistan is negotiating another instalment of loan with the IMF in Dubai which may be granted next month.

Rs86bn injected into banks

Meanwhile, the central bank on Friday injected Rs86bn into the banking system to meet the shortage of liquidity.

The SBP reported that an amount of Rs85.9bn was injected at the rate of return 9.97 per cent per annum, adding that the banks have been getting liquidity for the last three days.

The amount has been injected for seven days while the market would see a maturity of Rs90bn PIBs on Aug 18, 2014.

Banks have been investing heavily in PIBs for the last seven months and a total of about Rs1.7 trillion was invested alone in PIBs of one year maturity.

Despite making an advancement of about Rs380bn to private sector in FY14, bankers said there was no shortage of liquidity while their investment in the government papers would continue to rise.

Published in Dawn, August 16th , 2014