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State Bank of Pakistan buys $1.2 billion from inter-bank market to boost forex reserves

Central bank purchased $573 million in June and around $722 million in July

State Bank of Pakistan buys $1.2 billion from inter-bank market to boost forex reserves
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The State Bank of Pakistan has bought over $1.2 billion from the interbank market to boost foreign exchange reserves and meet principal and interest payments.

Data received on Friday shows the central bank purchased $573 million in June and around $722 million in July.

A leading analyst from a brokerage house stated that the main reason for this buying spree was to increase foreign exchange reserves and ensure timely external debt payments, including interest on foreign loans.

At the end of the financial year 2022-23, foreign exchange reserves were $4.4 billion, providing nearly three weeks of import cover.

However, entering the IMF program and continuous support from friendly countries, along with the central bank's dollar purchases, have significantly boosted reserves.

As of October 25, 2024, the State Bank's foreign exchange reserves reached $11.156 billion, with other banks holding $4.89 billion. This is almost double from a year ago, providing nearly two months of import cover.

An IMF report released last month indicated that Pakistan's gross reserves should cover at least three months of imports, supported by multilateral and bilateral loans and foreign exchange purchases.

The IMF also highlighted the SBP's commitment to allowing flexible exchange rate adjustments and not intervening against trend depreciation if outflow pressures return.

Efforts will continue to deepen the interbank FX market and enhance price discovery, allowing banks to operate freely without restrictions. Greater transparency on the SBP's interventions and reserve accumulation strategy will aid market development.

By the end of June 2024, gross reserves had increased to $9.4 billion, as continued foreign exchange purchases by the SBP more than offset debt service payments, including a $1 billion Eurobond maturity in April. FX market conditions have remained stable, with the rupee steady at around 280 per US dollar, and narrow spreads between FX rates in interbank and parallel markets.

The IMF report stated that Pakistan's external position in FY23 was broadly in line with medium-term fundamentals and desirable policies.

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