KARACHI: The State Bank of Pakistan (SBP) has issued new regulations, requiring banks to declare $ 500,000 and more of their future foreign exchange requirements for overseas purchases, apparently in an attempt to strengthen the monitoring money flow and making the rupee less volatile.
The SBP has issued new guidelines requiring banks to submit information relating to all their upcoming import payments of $ 500,000 and over for the next five days.
Previously, banks would submit information about their expected payments exceeding $ 1 million. Before the new rules, banks submitted details of imports arriving within two days.
“As part of the transition to a flexible exchange rate system, the SBP has encouraged banks to improve their forecasting and planning of foreign currency liquidity in the context of their upcoming business transactions, including payments,” said SBP chief spokesperson Abid Qamar said in a brief statement in response to The News’ question.
“At the same time, the SBP is also making concerted efforts to strengthen its own internal forecast of market flows and liquidity, which depends on the provision of good quality and high frequency data.”
Qamar said the SBP recently strengthened the existing data reporting mechanism to further refine its market liquidity projections
“The purpose of the report is simply to encourage banks to strengthen their forecasting and planning, and for SBP to take a broader view of near-term demand and supply of currencies.”
He said these reports, and the best liquidity forecast they facilitate, support the smooth functioning of a flexible and market-determined exchange rate system.
Demand for dollars has swelled and put pressure on the rupee in recent months due to the rise in the import bill and the outflow of dollars to Afghanistan following a regime change in the neighboring country.
A higher trade deficit on burgeoning imports widened the current account deficit to a whopping 81 percent in August to $ 1.476 billion. In response, the rupee has depreciated 4.1% since July.
SBP governor Dr Reza Baqir, however, told analysts during a monetary policy briefing that the current account deficit forecast is slightly high but remains within the previous forecast of 2-3% of GDP. It is too early to revise the CAD assumption as the results of the exchange rate are not yet known.
The government and the SBP have both stepped up efforts to control import growth and the current account deficit. The SBP raised its key rate 25 basis points to 7.25% earlier this week.
The Ministry of Industry has also proposed measures to control imports of luxury vehicles. The government plans to impose a 50 percent regulatory duty on the import of electric vehicles.
The regulatory tax on hybrid vehicles is reduced from 15% to 50% on 1,501 cm3 to 1,800 cm3. These interventions will discourage the importation of vehicles and help to close the current account deficit.