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Market-driven currency rate adjustment to contain external account, sustain higher growth

Market-driven currency rate adjustment to contain external account, sustain higher growth

ISLAMABAD: The Finance Ministry is optimistic that the market-driven adjustment in the currency exchange rate will contain the imbalance in the external account and sustain higher growth trajectory.

Therefore, the impact of exchange rate adjustment will be visible on the economy through more competitive exports with respect to peers leading to export earning, reduction, in imports through expensiveness in dollar terms. However, due to devaluation of the rupee against dollar debt will increase to some extent.

Sources at Finance Ministry told Customs Today that the GDP growth during 2016-17 was 5.3% which indicated effectiveness of the financial policies. Therefore now national economy is well positioned to achieve the real GDP growth target of 6% in 2017-18.

“This positive outlook is supported by a broad based growth in Large Scale Manufacturing (8.4%) during the first quarter of the year, encouraging assessment of major crops and positive spill-over of growth in commodity sector on services sector. Inflation, however, continues to remain low and stable, and stood at 3. 6% during the first five months of the year against a yearly budgetary target rate of 6%” the sources maintained.

Similarly, the sources said that exports had recorded a double-digit growth during July-November FY18 and foreign direct investment (FDI) reached a nine-year high; and workers’ remittances posted a modest growth. Continuation of high growth in imports led to a widening of current account deficit, and consequently to depiction in the country’s foreign exchange reserves.

Persistence of these pressures has led to adjustment in the inter­bank exchange rate” the sources said, adding that the exchange rate would continue to reflect the demand and supply conditions; and SBP stands ready to intervene, in case speculative and/or momentary pressures emerge, for smooth functioning of the foreign exchange markets.

Moreover, the sources said that exchange rate fluctuation was a normal activity in the financial markets based on demand and supply of foreign exchange. Economies around the globe experience exchange rate fluctuations from time to time.

It is pertinent to mention here that the Pak Rupee-US dollar exchange rate in the interbank market increased to Rs.110.54 for one dollar in the first week of current month as compared to Rs. 105.54 for one dollar as in December the last. This movement in the exchange rate is based on demand and supply of foreign exchange in the interbank market.