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Financial Markets

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Exchange Rate Regime

Pakistan has a market based flexible exchange rate system, where the exchange rate is determined by market demand and supply conditions and trend in the exchange rate is generally a reflection of external balance of payment position and other macroeconomic indicators of the country. Under this system, role of SBP’s interventions in the FX market is limited only to avoid disorderly market conditions and build FX buffers without suppressing any underlying trend. The exchange rate serves as the first line of defense against external shocks and helps to protect the country’s valuable FX reserves and to reduce the risk of an external account pressure.

  • The exchange rate applies to all foreign exchange receipts and payments in the interbank market. Authorized dealers form the interbank market are free to quote their own buying and selling rates

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FX Reserves

Foreign Exchange Act 1947 authorizes State Bank of Pakistan to manage country’s foreign exchange reserves. As an agent to the Government, the Bank has been authorized to purchase and sale gold, silver or approved foreign exchange and transactions of Special Drawing Rights with the International Monetary Fund under sub-sections 13(a) and 13(f) of Section 17 of the State Bank of Pakistan Act, 1956.

  • As the custodian of country’s external reserves, the State Bank is responsible for the management of the foreign exchange reserves and repayment of external debts. The FX reserves management task is being performed by an Investment Committee which, after taking into consideration the overall level of reserves, maturities and payment obligations, takes decision to make investment of surplus funds in such a manner that ensures prudent management of Foreign Exchange Reserves with core objective of; Safety, Liquidity and Optimum Return