EUR 8.54 For Business Accounts Only

Pakistan Economy: Pakistan Central Bank Governor Press Conference Takeaways

• Role of central bank is to ensure price stability (controlling inflation), financial stability (secured banking), and economic growth.
• Instability in economy was due to external and fiscal deficit. We are confident as these two factors are being addressed now.
• Government will now borrow from market rather than SBP to prevent inflationary pressure on economy.
• Exchange Rate: Due to fix exchange rate regime, Pakistan’s external situation (Current Account Deficit or CAD) started deteriorating and reserves were falling. After recent depreciation, country has seen substantial decline in CAD.
• Neither Fixed not free float regime of exchange rate is good for Pakistan, as former can lead of external imbalance and latter can lead to manipulation.
• Currently, in Pakistan market based system is implemented which protects exchange rate from manipulation and simultaneously follows demand supply mechanism.
• Pakistan has started getting benefit from currency devaluation in form of increase in export volumes. Further, imports are down which eventually promotes import substitution (local industry).
• It is important to note here, market driven exchange rate currency can appreciate and depreciate both.
• Interest Rate: Monetary Policy Statement (MPS) is designed to fight against inflation on forward looking manner. MPS committee of central bank is independent.
• IMF Role: There are two primary benefits of IMF program, 1) financing deficit at low mark up, and 2) signaling stability to international community which help country to bring more dollar inflows in form of low markup loans and investments both.
• As per SBP Governor, SBP has completed all tasks of IMF and next board meeting of IMF is scheduled on Jul 03, 2019.
• Egypt and Pakistan have similarities and differences both. Exchange rate in Egypt before IMF program was quite volatile where informal and interbank rates had difference of over 100%. In case of Pakistan spread is quite narrow. While fiscal deficit problem in both countries is same.