Karachi, July 19, 2023 – Pakistan is set to establish a new trading platform for spot exchange rate transactions, as part of its commitment to the International Monetary Fund (IMF).
The Pakistani authorities have assured the IMF that they will expedite the process of transitioning to a new trading platform for spot transactions, connecting all banks. They anticipate that the system will be operational by the end of December 2023.
READ MORE: Pakistan’s Salaried Class Witnesses Surge in Bank Deposits, Totaling Rs3.45 Trillion
In terms of the foreign exchange market, the authorities have reaffirmed their commitment to returning to a market-determined exchange rate and working towards restoring external stability. Although the current account deficit has narrowed, tighter external financing conditions have put significant pressure on reserves, which currently stand at approximately $4.2 billion, equivalent to around three weeks of imports.
The authorities have stressed the importance of restoring proper and normal functioning of the foreign exchange market to alleviate external pressures and ensure convergence across markets. They affirm their commitment to a market-determined exchange rate, allowing banks and exchange companies to freely determine exchange rates between Pakistani rupees (PKR) and foreign currencies, without any formal or informal influence.
READ MORE: Pakistani Banks Set to Record Strong Profits, Fueled by Higher Interest Rates
Furthermore, the authorities have pledged to refrain from providing guidance or expressing preferences to market participants regarding the exchange rate, and will not regulate the demand for foreign exchange through administrative actions.
Once the market functioning is restored, the authorities have assured the IMF that the average premium between the interbank and open market rates will be maintained within the range of no more than 1.25 percent and no less than -1.25 percent during any consecutive five-business-day period.
To enhance transparency and efficiency in the foreign exchange market, Pakistan will publish daily interbank and open market exchange rates. Additionally, a framework will be developed to monitor and publish developments and pricing in the informal market.
READ MORE: Banks Initiate Withholding Tax on Cash Withdrawal
The State Bank of Pakistan (SBP) will intervene in the foreign exchange market based on market conditions and the objectives of increasing reserves to a more prudent level of at least US$6.4 billion (equivalent to one month of import coverage) by the end of December 2023, and reducing the SBP’s net forward/swap position below US$4 billion. Forex sales will not be used to prevent a trend depreciation of the rupee driven by fundamental factors.
READ MORE: Banking Mohtasib Pakistan Assists Customers with Rs 539.72 Million Relief in 1HCY23
To ensure the integrity of the foreign exchange market, any abusive or anti-competitive behavior by market participants will be addressed through the enforcement of relevant regulations and applicable laws.
