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IMF range of 1.25% between interbank, kerb rates of dollar breached over last five days

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1 year ago

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  • Difference ranges between 2% to 4% for last five working days.
  • Local currency in interbank market continues to slide.
  • IMF under SBA mandated spread not to be more than 1.25% in five consecutive business days on weekly basis.

ISLAMABAD: The International Monetary Fund (IMF) structural benchmark for keeping the difference between interbank and open market rates for US dollar against the Pakistani rupee within the band range of 1.25% had been breached at least for the last five working days, The News reported on Thursday.

The difference ranged between 2% to 4% in the last five consecutive days whereas the global lender might raise this issue, with the caretaker government, in the upcoming negotiations expected to be held at the end of October or early November this year.

The State Bank of Pakistan (SBP) has been unable to keep the difference in exchange rate within the desired limit of 1.25% so far despite witnessing depreciation in the exchange rate.

The clearance of stuck-up containers at ports, payment of dividends, and removal of other restrictions have increased pressures on the exchange rate. 

Secondly, the IMF condition has been resulting in dollarisation because the interbank market was following the open market so everyone knows that investing in the dollar would increase benefits.

This scribe sent out a question to the SBP two days ago inquiring whether the agreed benchmark with the IMF was breached in the last five working days as the gap between the interbank and open market ranged around 4%. What’s the view of the SBP and how you ensured monitoring and then report it back to the IMF on a weekly basis?

The SBP’s spokesperson replied on Wednesday and stated “We do not have any comment to offer”.

The IMF under Standby Arrangement (SBA) mandated spread not to be more than 1.25% in five consecutive business days on a weekly basis.

The local currency in the interbank market continues to slide as the rupee in the interbank market stood at Rs295 and in the open market around Rs305 so the difference stood at 3.4%. From January 1, 2023, to August 15, 2023, the rupee witnessed a devaluation of 22.32% against the US dollar.

Independent economists feared that episodes of exchange rate depreciation were continuously expected during the gradual return to a market-based exchange rate.

While the rupee experienced an appreciation following the IMF under SBA, this effect was a combination of an increase in market confidence and depreciation of the US dollar. Because the trend of depreciation since FY23 has been driven by a deterioration of economic fundamentals, the effect of increased market confidence was only temporary, and the rupee-dollar exchange rate has returned to pre-SBA levels.

The recent depreciation could be attributed to the return to a market-determined exchange rate and commitment of no formal or informal intervention in foreign exchange markets, SBP’s interventions to be guided by the overarching objective of increasing reserves to at least $6.4 billion (1 month of import cover) by end of December 2023 and reducing SBP’s net forward/swap position to below $4 billion.

The foreign exchange sales are not to be used to prevent a trend depreciation of the rupee driven by economic fundamentals.

The policy rate was jacked up to 22% on June 26th, 2023, and will be further adjusted until inflation and inflation expectations are on a clear downward trend. The real policy rate (i.e., policy rate adjusted for inflation) might be brought into positive territory.

The withdrawal of a December 2022 circular issued to banks on prioritization in providing FX for certain types of imports, and a gradual phase-out of other FX and import restrictions, including the limitations on advance payments for imports against letters of credits (LCs) and advance payments beyond a certain amount per invoice (without LC) for the import of eligible items, and multiple currency practices also increased pressures on the exchange rate.

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Dar chairs the CCOP meeting; Blue World’s bid offer of Rs.10 billion is rejected.

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The Foreign Minister/Deputy Prime Minister chaired the Cabinet Committee on Privatization meeting.

Other committee members who attended the conference included the Federal Secretaries of several Divisions, the Ministers of Finance and Revenue, Industry and Food, Commerce, Power, and Privatization.

The CCOP took the PC Board’s recommendation into consideration and suggested that Blue World’s bid of 10 billion rupees for the sale of 60% of PIACL’s shares be rejected. The bid was rejected by the CCOP, who chose to follow the PC Board’s advice.

The government’s determination to sell out PIACL through government-to-government or privatization was reaffirmed by the CCOP.

The CCOP was pleased with the Aviation Division’s evaluation of PIACL’s sound financial standing.

Additionally, the CCOP established a committee, chaired by the Minister of State for Finance, to assess potential transaction possibilities for the privatization of the Roosevelt Hotel and the appropriate modes of adoption in light of existing legal rules.

Prior to its subsequent meeting, the CCOP also ordered that all difficulties be resolved and an agreement for the selling of services to an international hotel be concluded.

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The KSE-100 Index has surged by 790 points, resulting in an all-time peak for the stock exchange.

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The benchmark KSE-100 Index increased by 790 points, marking a new all-time high for the Pakistan Stock Exchange (PSX) at 94,982 points.

The record-breaking performance underscores a surge of optimism and investor confidence in the stock market.

As investors responded to favorable economic signals, the market experienced a significant increase of over 500 points in early trading. Later, the KSE-100 Index reached another record level of 94,786 points after adding 594 points to its upward trajectory.

This positive development comes as the State Bank of Pakistan’s (SBP) foreign exchange reserves saw an increase of $84 million, reaching $11.26 billion during the week ending November 8, according to data released by the central bank on Thursday.

This represents an increase of 0.75% from the previous week. In addition, the nation’s total liquid foreign reserves experienced a modest increase, increasing by $33.7 million or 0.21% week-on-week to $15.97 billion.

In contrast, commercial banks’ reserves experienced a decline of $50.3 million or 1.06%, ultimately settling at $4.71 billion.

Furthermore, the economic team of Pakistan has expressed confidence in the discussions with the International Monetary Fund (IMF). Minister of State for Finance Ali Pervaiz Malik, in an exclusive conversation with Samaa TV, claimed talks were moving in a positive direction.

Highlighting improvements in Pakistan’s economic conditions, Malik noted substantial progress over the past six months to a year. He emphasized that Pakistan’s current economic situation has seen significant enhancement, with a reduced current account deficit of only $100 million in the first quarter, a reflection of the government’s strategy to increase remittances and boost exports.

Malik shared that discussions with the IMF are primarily focused on external financing, and while there have been speculations about a potential mini-budget or an increase in the petroleum levy, he clarified that these are currently premature considerations.

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Positive IMF negotiations propel KSE-100 Index above 94,000 points

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As a result of investors’ optimism about the reported progress in the continuing talks with the International Monetary Fund (IMF), the Pakistan Stock Exchange (PSX) experienced a robust surge.

The benchmark KSE-100 Index of the PSX, which tracks market sentiment, rose 713 points to a new record high of 94,068 points, breaking above the 94,000-point barrier, as the trading session began.

Early in the day, the stock market began its upward trajectory as the KSE-100 Index steadily rose, gaining 574 points to reach 93,932 points. A possible agreement with the International Monetary Fund (IMF) might lead to more fiscal stability and back Pakistan’s economic reforms, which is why investors are so optimistic about the country’s future.

Officials from the Federal Board of Revenue (FBR) informed the International Monetary Fund (IMF) on Wednesday that the government would not be introducing a mini-budget and would instead continue to aim to collect Rs12,970 billion in taxes each year.

In line with continuing discussions with the Fund, FBR sources revealed that petroleum goods will not be subject to the General Sales Tax (GST).

The fact that Pakistan’s tax-to-GDP ratio has increased from 8.8% to 10.3%, a 1.5% gain viewed as a favorable sign of Pakistan’s fiscal policies, has reportedly pleased the IMF, who has voiced satisfaction at Pakistan’s recent economic performance.

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