The Dar is in favor of intervention in the foreign exchange market

ISLAMABAD:

Finance Minister Ishaq Dar said on Wednesday that some changes would be made to the central bank law at “an appropriate time”, urging intervention in the foreign exchange market that signaled a needed change in the policies supported by the Fund. international monetary policy (IMF).

In his first media interview after being sworn in as finance minister, Dar said the exchange rate regime could not be left to speculators, sending a strong message to the people and banks who had toyed with it. local currency value for their acquired rights.

“Intervention [in the foreign exchange market] for the good of the country is not bad, but obviously the approach must be realistic,” he said.

He added that all central banks in the world, including the United States and the United Kingdom, only intervene in the foreign exchange market when the value of their currencies goes above or below a certain band. .

Dar has hawkish views on the rupee-dollar parity and believes in the strong value of the rupee against the US currency. The Pakistani Rupee continued its upward trajectory for the fourth consecutive business day, gaining a fresh Rs 1.79 to a new two-week high of Rs 232.12 against the US Dollar on Wednesday.

However, the new finance minister made it clear that he was not against the “market-based exchange rate regime”, insisting that it was the Pakistan Muslim League-Nawaz (PML-N) in government that implemented the market-based exchange rate regime in 1998.

Pakistan does not have the luxury of throwing dollars into the market due to low reserve levels of $8.6 billion, so the Dar is expected to improve the value of the currency through measures administrative and restriction of imports.

Maintaining a genuine market-based exchange rate regime is one of the four pillars of the IMF’s program. The IMF pushed Pakistan to adopt this free regime after $24 billion poured into the market from 2012 to 2019.

According to The Express Tribune exclusive in January 2020, the State Bank of Pakistan (SBP) injected $24 billion into the interbank market from 2012 to 2019. The official record showed that the money was thrown at the interbank market at a time when Pakistan was not participating in any IMF program.

The official record also showed that from July 2012 to July 2013, the central bank injected $3.43 billion into the interbank market. The highest amount of cash injection took place from October 2016 to June 2019 – the period when there was no IMF program in Pakistan.

During this period, the SBP paid out $20.7 billion in the interbank market. The highest amount the SBP used to defend the rupiah in a quarter was $2.2 billion which it pumped in between May and June 2018, followed by $1.8 billion from January to March 2018. This was the period when Ishaq Dar was not Minister of Finance.

From October 2018 to April 2019, the SBP injected nearly $4.5 billion into the interbank market when the PTI was in power. The Express Tribune reported in September last year that the SBP again threw $1.2 billion into the market from May to September 2021.

Responding to a question about the policy of injecting dollars into the market to keep the rate low, Dar said it was a “massive lie”. “We had no dollars to inject,” he said, adding that the PML-N government had accumulated foreign exchange reserves of $23 billion. He went on to say that it was “natural progress and growth” and the result of the policies of PML-N supremo Nawaz Sharif.

“I believe in a market economy, but no one will be allowed to play with Pakistani currency,” he said.

Responding to another question about absolute autonomy given to the SBP by the previous regime under the IMF deal, Dar said there were few unreasonable clauses in the SBP law, “which will be changed when the time comes. came”.

During his first visit to the United States, the IMF banned former finance minister Miftah Ismail from modifying the SBP law. All political parties have serious reservations about certain amendments made to the SBP law under the duress of the SBP.

The Monetary and Fiscal Policy Coordination Board (MFPCB) was abolished, which the PML-N and the PPP wanted to keep. These political parties were also against a total ban on the government borrowing from the SBP, fearing it would put the federal government at the mercy of commercial banks.

Their fears have proven true over the past eight months.

Thanks to amendments to the SBP law, parliamentary control of the central bank has been further weakened. The government also wants to have an institutional arrangement instead of establishing a liaison between the Minister of Finance and the Governor of the SBP.
By law, the SBP board and its chairman, who is the governor, are also against best practices, said PML-N MP Ali Pervaiz Malik. The PML-N also opposed giving the governor the power to appoint deputy governors.

The opposition also suggested an amendment to the bill to limit the board’s powers to set the salaries of governors and deputy governors, saying the public sector could not have salaries equal to those of the private sector.

While talking about the rising inflation in the country, Ishaq Dar said that a strong rupee will help contain inflation. “You all know what stage the economy was in when the PML-N left the government. Food inflation was 2%, reserves were at their highest, the rupee was stable at Rs 104.50 and Pakistan’s growth was 6.3%, the new finance minister said.

Dar blamed the PTI government for failing to manage the economy. He added that the PDM government could not reverse the destruction of the PTI’s nearly four-year mandate in a matter of months.

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