State Bank rubbishes claims of $3bn loss due to dollar cap

KARACHI – Pakistan’s central bank dismissed the reports claiming that capping the price of US dollar caused loss of $3 billion in remittances and exports.

The development comes as the Pakistani rupee plunged around 10 percent against USD last week, in a biggest one-day drop in over two decades as Exchange Companies decided to remove the cap on the US dollar, in a bid to end the hike in artificial demand for the dollar in the market.

State Bank of Pakistan now cleared the air in a press release, calling reports incorrect, citing a number of factors. “Export of goods have been facing headwinds due to moderating demand in international markets as most of our major trading partners are going through a period of monetary tightening,” the SBP said.

It added that the US Federal Funds rate has surged from 0.25 percent in March 2022 to 4.5 percent to date; suggesting a noticeable global monetary tightening.

The bank further maintained that inflation has been higher in the developed world, eating into the purchasing power of consumers, and mentioned that factors like floods and ensuing supply disruptions have negatively impacted exports.

“In this backdrop, linking the decline in exports to a relatively stable exchange rate is not appropriate,” it said.

The press release further mentioned that “workers’ remittances were gradually tapering off from an all-time high level of $3.1 billion achieved in April 2022 due to Eid-related flows.”

The decline in exports and remittances is a result of number of exogenous factors and domestic reasons and it wouldn’t be appropriate to ascribe it to the exchange rate only, the State Bank justified.

Exchange giants decide to remove cap on dollar to hammer black market

The development comes as foreign reserves held by the central bank plunged to $3.6 billion, not enough to cover monthly imports as the government desperately taking harsh steps for the revival of the IMF stalled loan program.