- Says falling foreign exchange reserves concerning, but central bank has moved to arrest deterioration
State Bank of Pakistan (SBP) Governor Dr Reza Baqir has said the ongoing decline in foreign exchange reserves is concerning, but remained confident that a rollover of loans would be seen in the coming days, and that, along with other central bank measures, would boost market sentiment.
“The fall in reserves is concerning, but we are confident that actions taken by the central bank would halt further deterioration,” he said while talking to a private TV channel.
Reserves held by the central bank decreased by $728 million to reach $11.32 billion as of April 1, 2022, revealed data released by the SBP on Thursday.
The decrease comes “largely due to debt repayment and government payment pertaining to the settlement of an arbitration award related to a mining project", said the SBP.
The rupee also fell to record lows during the outgoing week, prompting the central bank to act, which began by raising the key interest rate, announcing a 100 percent cash margin on the import of 177 items with immediate effect, and increasing the markup rate for financing under Export Finance Scheme (EFS) by 2.5 percent.
Talking about the Monetary Policy Committee's (MPC) latest rate hike, the SBP chief said that the decision was taken to curb rising inflation rate and reduce pressure on the external front.
“If we look at the external front, there was considerable pressure on the foreign exchange market for a month or so,” said Dr Baqir.
“There were a number of factors behind it — firstly there was domestic uncertainty, and then our reserves depleted on account of debt payments, whereas the rollover of certain loans remains pending, which created uncertainty in the market.
"Oil prices remain high on account of Russia-Ukraine tensions," he said, which has added to pressure on the rupee.
Dr Baqir said that figure for the month of March revealed that both core and headline inflation increased. “Headline inflation jumped from 12.2% in February to 12.7% in March, whereas core inflation also saw a big rise,” he said.
Dr Baqir said that after analysing the data, the central bank reached a decisive decision to reduce the inflation rate, improve foreign exchange reserves, and boost the business community's confidence.