Rupee may slip after SBP stops dollar supply for furnace oil : The News

By Mehtab Haider

ISLAMABAD: Governor State Bank of Pakistan Salim Reza has hinted at the possibility of further depreciation of the rupee against the dollar from next month when the central bank will stop providing dollars for import of furnace oil under the International Monetary Fund’s programme.

“The SBP’s decision to stop dollar supply for import of furnace oil from next month may put some pressure on the exchange rate and in the short term it can reduce rupee value by 2 to 3 against the dollar,” the SBP Governor said in his first appearance before the Senate Standing Committee on Finance and Revenue which met under the chairmanship of Senator Ahmed Ali at the Parliament House here on Wednesday.

At this point, PML (Q) Senator Haroon Akhtar reminded the central bank governor that he should not make any statement on further depreciation of the rupee which will start pushing the rupee lower against the dollar from tomorrow. At this point the Governor SBP said that when short-term phenomenon would be over the rupee would stabilise at the existing level of 79-80.

The senators from the treasury and opposition benches questioned the top economic managers on rising interest rates at the cost of economic activities, sustainability of debt in years ahead, PPP-led government’s endorsement of policies pursued by the Musharraf regime in official communication to the IMF and unutilised funds in the accounts of ministries and public sector organisations.

Earlier, in the standing committee meeting, the Governor SBP said that the central bank was not targeting the exchange rate mechanism and it intervened in the market only to smoothen it.

Under the IMF programme, the SBP will stop providing dollars for importing furnace oil by mid-February. For other POL products, the SBP will stop providing dollars for one product in June 2009 and it will be completely phased out by the next financial year.

Senator Haroon Akhtar questioned the SBP Governor regarding the tight monetary policy saying that the inflation was not caused by demand push but actually cost push was fuelling the core inflation. Governor SBP endorsed all points raised by Senator Haroon Akhtar and kept on saying that the tightening of monetary policy by raising discount rates aimed to curtail core inflation.

The Governor SBP in his presentation told the meeting that the private sector credit had gone down to Rs178 billion in first six months of the current fiscal against Rs246 billion in the same period of the previous financial year, registering a decline of Rs68 billion.

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