Currency devaluation ruled out on IMF advice
From Zeeshan Mirza

KARACHI—Governor, State Bank of Pakistan Dr. Shamshad Akhtar Sunday categorically said that the central bank is not in the business of devaluing or artificially backing the currency.
Addressing a press conference held here, she brushed aside all misperceptions and misunderstanding regarding central bank’s position on exchange rate and said the policy adopted by the government is largely left to market fundamentals. She clarified that the IMF has not advocated, in its consultatios with Pakistan, any depreciation and rather has provided its prespective and analysis of the movements in the real effective exchange rate. She said exchange rate has broad based implications for resource allocation, trade openness, balance of payments and growth of the economy, therefore, it needs to be left to market fundamentals so that it aligns itself closer to the long run equilibrium rate.
She said, there continue to be speculations or improper interpretations and pressures on the Government to manipulate and maneuver the exchange rate. Given the significance and sensitivities surrounding exchange rate policy regime, it is critical for the central bank to ensure that market players understand well the exchange dynamics in Pakistan and the central bank policy stance in this area, she said. The SBP Governor pointed out that the central bank abandoned fixed rate regime a long time ago and moved to a floating rate regime since early 2000. While the initial years of reforms did see sharp depreciation of the rupee. “With the emergence of macroeconomic stability, Pakistan enjoyed a degree of exchange rate stability, which has augured well for restoring investor confidence,” she added.
She said the debate on exchange rate adjustments has lately been re-triggered by a set of events which have included recent weaknesses in the export performance and the recent IMF article IV Report. There are some clarifications that are in order to set the debate in this context right.
Governor State Bank of Pakistan’s (SBP) Dr Shamshad Akhtar said that rupee is not going to be devalued. Talking to newsmen here on Sunday during a press briefing on exchange rate policy, the SBP governor made it clear that International Monetary Fund (IMF) has not given any suggestion vis-ŕ-vis depreciation of rupee. She was well flanked by State Bank spokesman Syed Waseemuddin on this occasion. Denying any pressure from IMF to determine the exchange rates, she said that in Pakistan, exchange rates are determined in inter-bank market. Governor State Bank of Pakistan said that exchange rates have been left on market forces, adding she said that at inter-bank market, rupee would remain stable versus dollar. She said that State Bank was trying to reduce inflation, which will reduce business costs and help exporters. She also said instable foreign exchange rates were also damping the cause of exporters who were facing losses because of it.
Dr Shamshad Akhtar said that stability in the exchange rate has proved to be, and will remain, important to ensure macroeconomic stability and to attract investment in the country. Governor SBP said that Pakistan’s external financing prospects would remain favorable for several years. This is also acknowledged in the recent IMF Report on Article IV Consultations with Pakistan in 2006. Responding to a query, the State Bank governor said the central banks do interfere in world markets; however, in Pakistan, State Bank does not interferes in Pakistani market. She also said that with its strict monitoring policy State Bank has done all to stabilize the value of rupee.