Islamabad:
The central bank admitted on Tuesday that its purchase of almost $ 8 billion on US dollars kept the local currency weak, but added that a stronger rupie would make imports cheaper and could again put pressure on the external sector.
Acting Deputy Governor of State Bank of Pakistan (SBP), Dr. Inayat Hussain, the National Assembly Standing Committee on Funding told the current US Dollar-Puppee parity on around RS282 was “fair.”
“Your claim is correct. If SBP stops collecting dollars from the market, it will strengthen the rupe. But imports will also rise,” he said, answering a question from MNA Muhammad Jawed Hanif.
The committee, led by PPPS Syed Naveed Qamar, received a briefing from the central bank on inflation trends, economic growth, losses on current accounts and currency exchange rate.
During July May with FY2024-25, SBP had purchased a total of $ 7.8 billion from the local market, Hussain said.
Critics have long accused the central bank and the International Monetary Fund (IMF) of manipulating the value of the rupe by buying dollars from the local market in violation of the free market principle that the IMF itself dictates to the world.
Last week, Deputy Prime Minister Ishaq Dar repeated once again that rupien on the basis of economic basic elements should trade with RS260. But SBP’s dollar purchase has kept it closer to RS282 per year. Dollar.
Hussain claimed that the dollar purchases have also improved the quality of the currency reserves, which were previously built mainly through foreign loans. Now these reserves are mostly built on purchases from the local market. “Our primary goal is to build reserves. We only buy when there is excess foreign currency available on the market,” he said.
MNA Hanif said Market Talk places Rupee’s fair value between RS250 and RS260. By keeping it on RS282, he said, SBP contributed to inflation.
“From now on, Rupien is right price. It is neither underrated nor overrated,” Hussain said, adding that future rates will largely depend on currency availability and import amounts.
SBP Director Amin Lodhi said the central bank’s goal was to increase reserves to $ 15.5 billion by December and $ 17.5 billion by June next year. But this would still be below the safer level of $ 20 billion, equivalent to three months of import coverage, added.
Hussain emphasized the need for a stronger pillow to absorb any shocks from a reduction in exports considering the current challenging environment.
He added that the deficit in ongoing account is expected to remain under control and is expected to be in the area up to 1% of the size of the economy. Foreign transfers continue to be the carrier beam for lower deficits, with the central bank expecting transfers to be connected to touch $ 40 billion this year.
Inflation prospects
In inflation, Lodhi warned that it could gradually increase and also temporarily violate the target of 7% due to the erosion of the basic effects and the effect of recent floods. He said projections show that inflation would later return to the range 5-7% and is expected to remain stable.
He said the impact of gas price increases in July and another expected increase in February had already been incorporated into forecasts by the central bank.
However, economic growth may remain limited to about 3.25% below the government’s target of 4.2%. The average growth of the last decade has only been 3.4%, reflecting repeated boom-and-bust cycles, Lodhi said.
He said it would be conditional to accommodate the 7% inflation target by keeping interest rates on the current 11%. If interest rates are reduced, inflation would rise, he said.
The committee chairman said that SBP was often criticized as “too conservative” but argued that the economy needed a driving force to grow.
Tax controvers
The meeting also approached tax cases. The Federal Board of Revenue (FBR) Chairman Rashid Langrial revealed that Prime Minister Shehbaz Sharif has constituted a committee to review the newly imposed 10% VAT in the merged districts of Khyber-Pakhtunkhwa.
After being subjected to considerable pressure, the government imposed the government’s revenue tax in the budget, but its decision to open the case can raise many eyebrows, especially on the IMF.
Langrial said the committee would be led by the Prime Minister’s adviser to political affairs, Rana Sanaullah Khan.
The newly merged districts were exempt from turnover tax and created huge problems for other areas of the country due to the 18% cost advantage that industries have located there. The facility was grossly abused and forced the government to withdraw the exemption and impose 10% tax on the current financial year.
Qamar said the public accounting committee had referred the issue to the Finance Standing Committee after receiving representations from various trade bodies.
The FBR chairman suggested tax differential subsidies to residents of these districts through Benazir Income Support Program (Bisp) to offset the impact, but the committee rejected the recommendation.
