State bank will intervene in currency market in case of major volatility: Dr. Reza Baqir

Dr. Reza Baqir (center) is addressing his first news conference in Karachi on June 17, 2019 after taking charge of the country’s central bank. (AN Photo)

• Says the country is moving toward stability and growth as major economic issues are being addressed
• IMF likely to approve $6billion bailout program on July 3 in its board meeting

KARACHI: Governor State Bank of Pakistan (SBP) Dr. Reza Baqir on Monday challenged a widespread assumption that his institution would not intervene in the currency market to stabilize the Pakistani rupee since the International Monetary Fund (IMF) required it to adopt a floating exchange rate and the bank had no option but to comply with the stringent condition.
Pakistan’s central bank is legally empowered to regulate the banking sector and conduct an independent monetary policy. Given the rapid decline of the national currency, foreign exchange dealers have asked its management to play its role and strengthen the Pakistani rupee. 
Addressing his first news conference in Karachi on Monday after taking charge as state bank governor on May 5, 2019, Baqir said that neither fixed nor floating exchange rates were in the interest of the country since the first created external imbalances and the second led to manipulation.
A former IMF employee, he added that the state bank would “keep an eye on the exchange market and intervene in case of major volatility through market-based exchange rate mechanism.” He continued that this implied “a two-way movement.”
Pakistan has devalued its currency by about 50 percent since December 2017 when it was traded at Rs105 against the United States dollar.
The governor said that the country was on its way to stability and growth since the country’s new economic team was addressing major issues causing instability through broad financial reforms. “The country has addressed the issues of current account and fiscal deficit. After recent depreciation, the current account has witnessed a substantial decline.”
Pakistan’s current account deficit was $19.9 billion during the fiscal year 2017-18, but it came down to $11.6 billion during the 10 months of the current fiscal year FY19. The central bank expects it to reach the $13 billion mark by the end of the current fiscal year at the end of this month.
“The country is benefiting from the currency depreciation because the current account deficit is declining and exports are on the rise,” he said, adding: “Imports are declining which is good for the promotion of import substitution.”
Last month, Pakistan and the IMF reached a staff level agreement on a $6 billion bailout program after months of negotiations. The IMF board meeting, scheduled to take place on July 3, 2019, is expected to give the final approval for the loan program.
“Pakistan has completed its part of conditions agreed with the Fund,” the state bank governor said without giving further details. “The deal has ended uncertainty and will send positive signals to the world community that Pakistan is now open to support.”
He added that the country had secured financing at a low interest rate. 
Baqir, who previously served in Egypt, hoped his cross country experience would benefit Pakistan. “The state bank has an overriding principle that the it would do whatever is in the interest of the country,” he said.
The bank, he continued, was also “fighting inflation through various monetary policy tools and will keep doing so whatever resources we have at our disposal.”
The governor expressed satisfaction over the economic future of the country, saying “our major opponent is uncertainty which is gradually subsiding.”