State Bank of Pakistan has confirmed that the exchange rate is determined by market forces of demand and supply and is a reflection of the existing Balance of Payment (BoP) position.
The central bank, in a tweet, said that forward exchange rates are determined by the existing spot rates and interest rate differentials of the relevant period i.e. time value of money.
(1/3) #Exchange rate is determined by market forces of demand and supply and is a reflection of existing BOP position. Forward exchange rates are determined by the existing spot rates and #Interest rate differentials of the relevant period i.e. time value of money. #SBP #Pakistan
— SBP (@StateBank_Pak) January 10, 2020
In a series of tweets, SBP apprised that forward exchange rates (ER) are not a forecast of future exchange rates. The report on IMF on Pakistan includes ER assumptions which are not predictions. Under the IMF-supported program, there is no agreed target level for the exchange rate. ER is market-determined.
(2/3) Forward #exchange rates (ER) r not a forecast of future exchange rates. #IMF Report on #Pakistan includes ER assumptions which r not predictions. Under the IMF-supported program there is no agreed target level for exchange rate. ER is market determined. @imf_pakistan #SBP
— SBP (@StateBank_Pak) January 10, 2020
SBP further mentioned that IMF-Pakistan had earlier tweeted about the inclusion of exchange rate assumption in its published Staff Report on Pakistan which said,
The published Staff Report on Pakistan includes exchange rate assumptions which are not predictions. Under the IMF-supported program there is not agreed target level for the exchange rate, which is market determined.
The clarification comes in after a report was published in a local English newspaper that the National Electric Power Regulatory Authority (Nepra) was apprised that US 1$ will be equal to Rs. 170-172 by the end of the current year (2020) as per International Monetary Fund’s (IMF’s) and State Bank of Pakistan’s (SBP’s ) foreign exchange forward policy for commercial banks.
