Moving Towards Stability: SBP Governor
Karachi: A week after the incumbent government`s first official budget for FY 2019-20, the newly appointed Governor State Bank, Reza Baqir briefed media representatives here in Karachi on Monday.
Baqir stated that the government`s economic team is undertaking all necessary measures to regain stability, improve growth and pass on the benefit to lower strata of the economy. Baqir`s presser was mainly about the reforms the government of the day has included in the recent budget.
“The reforms tend to cater to the external deficit and fiscal deficit which are being addressed in a credible manner”, the Governor added. In another positive development, Baqir stated that the government would no longer borrow from the State Bank, instead will revert to alternative borrowing in the market.
According to Baqir, the previous government`s managed exchange rate policy, which resulted in foreign reserves depletion has worsened the situation.
“The fixing of the exchange rate for a long time led to an increase in external deficit and depletion of our reserves,”, Baqir added.
Baqir was of the view that the recent exchange rate trends were primarily based on seasonal fluctuations such as Eid festivities where overseas Pakistanis tend to remit more than usual resulting in an appreciation. On the contrary, when the companies approach closing date, they are bound to pay their foreign creditors which again results in subsequent depreciation.
“With an increase in the exchange rate, the trade deficit is coming down,” Baqir said.
With regards to interest rates, Baqir explained that an interest rate hike or reduction is done by the State Bank`s Monetary Policy Committee which tends to account all possible factors including inflation and etc.
The Governor was a testament to the fact that the best tool to fight or curb inflation is an effective monetary policy.
While commenting upon the staff level agreement between the Government and International Monetary Fund, Baqir assured that all IMF conditions were duly fulfilled which remain in the best interest of the country.
“The agreement itself will send positive signals to international markets regarding our financial stability, which will be a confidence-building measure for both, foreign and local investors”, added Baqir.
He informed media representatives, that the IMF board is set to meet on July 3, 2019, which would add further clarity as all details pertaining to the agreement will be published soon.