KARACHI (March 24 2003) : The State Bank of Pakistan (SBP) buying of dollars from banks was almost tripled in the six months ended December 31, 2002 to keep the rupee from strengthening further against the US currency and to help boost the country's exports.
State Bank of Pakistan, the central bank bought $2.541 billion from banks, compared with $720 million in the same period a year earlier, said in a quarterly review of the economy published last week.
This signifies that in Rupee terms, the SBP managed to inject close to Rs 150 billion in the local interbank market during 1HFY03.
This huge $2.5 billion purchase (about $420 million per month) during 1HFY03 shows the tremendous effort by the SBP to provide support to the falling dollar against the Pak Rupee.
However, with the advent of huge remittances through proper channels, the SBP has ended its policy of purchasing any dollar from the kerb market during 1HFY03.
“The buying of dollars from the interbank suggests that the rupee would be expected to strengthen abruptly, with potentially disastrous consequences for exporters, if the central bank support is removed,” report said.
The bank sought to protect exporters from a strengthening of the rupee that made their products expensive and less competitive overseas.
Pakistan's export growth will slow in the current fiscal because of the war in Iraq, report said.
Pakistan is aiming for a record $11 billion in exports in the fiscal year that ends June 30 after higher-than-expected demand for textiles, the government said last month, revising a June 2002 forecast of $10.4 billion.
In the year ended June 30, 2002, exports fell 1 percent to $9.1 billion and imports fell 3.7 percent to $10.3 billion, leaving a trade deficit of $1.2 billion.
Exports rose 18.9 percent to $6.916 billion between July and February, the first eight months of the fiscal year, up from $5.812 billion a year earlier.
Exports may be hit by higher costs because of fuel prices and a possible increase in war-risk premiums, the report said.
Rising reserves are driving up the rupee, which rose 3.5 percent against the dollar since the start of Pakistan's fiscal year in July, making exports more expensive on world markets and eroding the value of foreign currency earnings.
Pakistan's currency reserves rose to a record $10.3 billion after it received the fifth instalment of a three International Monetary Fund and $530 million from the US for supporting the war against terrorism.
The government will use foreign currency reserves of more than $10 billion for the early repayment of high-interest debt and it will also consider a global bond sale to get cheaper financing, say experts.