June 2024, May 2025: SBP bought $7.8bn from market, NA panel told

ISLAMABAD: A parliamentary panel was informed on Tuesday that the State Bank of Pakistan (SBP) purchased USD7.8 billion from the market between June 2024 and May 2025, including USD522 million in May 2025 alone, in a bid to bolster foreign exchange reserves and shield the economy from external shocks.

The SBP officials, briefing the National Assembly’s Finance Committee, chaired by Naveed Qamar, said the current account deficit is projected at 0-1 per cent and inflation is expected to stay within the 5-7 per cent target for FY2025-26, amid a continued conservative monetary policy to avoid a boom-bust cycle.

The committee was briefed on monetary policy and inflation trends. It was informed that a prudent monetary stance had contributed to macroeconomic stability, with inflation coming down sharply and expected to stabilize within the set target. SBP representatives noted that economic growth is gradually recovering without putting undue pressure on the external account or inflation.

Pakistan economy in ‘better position’ to manage domestic risks, external shocks, says SBP

While foreign exchange reserves have improved, they emphasised that further build-up of FX buffers remains essential. Inflation outturns are broadly projected to remain within the 5-7 percent range, though they acknowledged that figures could change with evolving circumstances. So far, floods have had no major impact, but if the situation deteriorates, projections would also be adjusted.

Pakistan’s economic growth rate in FY2025 was recorded at 2.7 per cent, while FY2026 growth is expected to be between 4 and 4.7 per cent. Over the past decade, average growth stood at 3.4 per cent. Reserves are projected to reach USD15 billion by December and USD17.5 billion by the end of the fiscal year. However, USD20 billion is considered a comfort level – covering three months of imports, as per international standards.

In response to various questions from the committee chair and members, the SBP officials reiterated that growth is recovering steadily and sustainably, without creating excessive inflationary pressure or external vulnerabilities. The improvement in the external account is reflected in the reduction in the CAD and the build-up of FX reserves. The committee was told that the exchange rate is currently stable and fairly priced, though future trends will depend on inflows and outflows.

Committee members raised concerns over market access for dollar purchases, noting that the rupee’s value could have fallen if the SBP had not intervened.

SBP officials responded that a stronger PKR could increase imports, which might again put pressure on the external account.

They added that earlier reserve build-up was largely driven by borrowing, but is now being supported through dollar purchases from the market. However, the committee objected to this approach, calling it counterproductive.

SBP officials emphasised that their primary objectives remain price stability and financial stability. They added that the central bank’s FX reserves have increased and that the SBP’s mandate is to provide overall macroeconomic stability.

The committee also criticised the conservative monetary policy. Member Javed Hanif pointed out that the interest rate stands at 11 percent, which is four percent above the inflation target of 5–7 percent. The SBP officials responded that all relevant factors were taken into account in their projections, and that the Monetary Policy Board includes three independent members. The next monetary policy meeting is scheduled for September 15.

Committee member Sharmila Farooqui questioned whether the interest rate should be lowered given current inflation levels, which, she said, do not reflect ground realities.

She asked whether the rate should be adjusted according to the target. SBP officials replied that the current positive interest rate is due to future concerns. They noted that inflation is trending upward and that they are monitoring the ratio of global and domestic prices closely.

Copyright Business Recorder, 2025