KARACHI, Sept 3: The State Bank has come up with another tool of monetary management that will not only help it achieve its monetary targets but will also keep banks liquid in local and foreign currency.

It is the much-awaited swap desk. The desk is to start working from Wednesday — provided the phone cables are not stolen again!

Bankers said Reuters had made technical arrangements to make the State Bank swap desk functional from Tuesday. “But we found early this morning that six to seven feet of PTCL underground cables passing through Fatima Jinnah Road was cut out and stolen — possibly by some drug addicts,” Reuters Country Manager in Pakistan Javed Farouqi told Dawn.

The SBP will use its swap desk for buying foreign currency in spot and selling in forward — and sell foreign currency in spot and buying in forward — against the rupee. All this activity will be taking place in the inter-bank market. “We will do this as and when required,” said Foreign Exchange Adviser of SBP, Zafar M. Shaikh.

Jargons aside it means that if the banks go short in foreign currency the SBP will sell dollars in spot and buy in forward — and when it goes long the central bank will buy dollars in spot and sell in forward. This will naturally change rupee liquidity level as well: when the State Bank will be buying dollars in spot it will be injecting rupees into the system — and when it goes for selling dollars it will be mopping up excess rupee liquidity.

“Thus we will use the swap desk as an effective monetary tool to attain our monetary objectives,” says Zafar Shaikh.

This means that through dollar/rupee swaps the State Bank will try to keep monetary expansion within targeted levels.

Besides, it will help banks overcome rupee or foreign currency liquidity shortages immediately.

This will create more room for the banks to let the exporters discount export bills — or sell export proceeds in advance — on the one hand and make spot buying of dollars on the other.

With the SBP the dollar/rupee swap desk in operation the banks will also find it easier to sell forward dollars to the importers and cover their positions through spot buying of dollars against it.

Bankers close to the State Bank say the central bank can also use the dollar/rupee swap desk to maintain stability in exchange rates — and to let the rates move in one direction or the other.

But the SBP officials are reluctant to say anything on it.

Bankers close to the SBP say the central bank had been toying with the idea of setting up a dollar/rupee swap desk for more about a year, adding what has seemingly emboldened the SBP to go for it is a buildup in foreign exchange reserves: Pakistan now has $7.5 billion liquid forex reserves up from $3.2 billion a year ago.

SBP officials say they have not set aside any specific amount of foreign exchange reserves for the purpose of selling dollars through swap desk, adding that the central bank does not need to do it. “We will do it as a matter of routine — without having a special fund for this purpose,” Zafar Shaikh told Dawn.