KARACHI: The State Bank of Pakistan (SBP) said on Tuesday that the recent developments on the exchange rate regime do not pose any serious challenge to the economy as “this positioning is driven by international currency movements and not due to any weakness in the domestic economy”.

The central bank’s statement came a day after the US dollar jumped 2.3 per cent against the rupee, much to the shock of stakeholders.

“The macroeconomic stability achieved through sustained improvements in economic fundamentals is very much intact,” the SBP said. “Our external sector is robust and reserves are at a historically high level.”

The State Bank believes that the local currency will remain stable, and may even strengthen depending on the movement of international currencies. “We are keenly watching the international economic developments and its impact on our domestic economy,” it said.

“Since the start of devaluation of Chinese yuan on Aug 11, 2015, currency depreciation around the globe has accelerated, particularly in the developing countries.”

Many countries have allowed their currencies to depreciate, primarily to maintain their trade competitiveness against China, said the SBP, adding that Pakistan cannot remain immune to the developments around the globe.

So, on Aug 24, the rupee depreciated to Rs104.50 against the US dollar, the central bank said. “This translates into a single-day movement of the currency by 2.4pc and a cumulative depreciation of 2.6pc since the beginning of this fiscal year.”

The State Bank said it is watching the rent-seekers who tend to capitalise on such situations and damage the economy by speculation. “The SBP stands ready to take any measure to ensure stability in the markets and will deal with such unscrupulous elements with strong measures.”

Depreciation ‘temporary’

Meanwhile, SBP’s Deputy Governor Saeed Ahmed said the rupee’s fall is temporary, stressing that the demand and supply situation in the market is affecting the currency’s value.

“There’s no need to panic as the currencies of China, India and other countries have also witnessed depreciation recently,” Ahmad told reporters after addressing the 9th Pakistan SME Forum 2015.

He said the decline in Pakistani exports could not be linked only to the value of national currency. There were other factors behind the decline, he said, citing the energy crisis as one of the major reasons behind falling exports.

To a question, he said the banking sector disbursed agriculture loans worth Rs509 billion during the last financial year.

Ahmed, while addressing the inaugural session, said the central bank was considering giving indicative targets to banks and review the performances against the targets after a certain period. He said a bank might consider formulation of regulations to impose mandatory targets if it does not receive favourable results.

Union of Small and Medium Enterprises’ Secretary General Sajid Naqvi highlighted that the government and regulatory bodies need to take prompt notice of long-standing issues which were preventing entrepreneurs and the micro-small outfits in moving forward.

Small and Medium Enterprises Development Authority CEO Mohammad Alamgir Choudhry said the apex body went the extra mile to be a helpful facilitator to SMEs which approached them for assistance.

Published in Dawn, August 26th, 2015

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