SBP boosts reserves with local buying

Published May 24, 2024
Commercial banks’ foreign exchange holdings dropped $63m to $5.4bn in the week ending on May 17.—AFP
Commercial banks’ foreign exchange holdings dropped $63m to $5.4bn in the week ending on May 17.—AFP

KARACHI: Without any foreign inflow, the State Bank of Pakistan’s (SBP) foreign exchange reserves showed a meagre increase, while commercial banks recorded a significant drop during the week ending May 17.

On Thursday, the central bank reported a $22 million increase in its reserves to $9.157 billion during the week. This upward trend in reserves reflects the SBP’s strategic dollar purchases from the interbank market.

Before releasing the final tranche of $1.1bn under the Stand-By Arrangement, IMF wanted the SBP to boost its forex reserves to $9bn. The government believes the reserves could reach $11bn by the end of June.

Currency experts watching the situation believe that Pakistan still needs to fulfil several preconditions to reach a Saff-Level Agreement in the final talks with the IMF for a new bailout.

On the other hand, expectations for foreign investment could not take shape during the outgoing fiscal year. Despite a lucrative offer to sell Pakistan International Airline (PIA), global investors have yet to show much interest. Political parties are raising questions about whether selling the national carrier with airports could create problems for the country’s defence.

Dollar availability

Currency dealers in the open market said the inflows were high during April and May. They sold about $400m in April, and the trend continued in the current month as well.

However, the commercial banks reported a $63m drop in their forex holdings to $5.4bn during the week ended on May 17.

The country’s total reserves declined by $41m to $14.6bn during the same week. Analysts said this amount could hardly cover 1.73 months of imports. The country has recently witnessed a rise in remittances and foreign direct investments, but the financial sector did not consider it significant.

Published in Dawn, May 24th, 2024

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