Wed, Dec 05, 2018 - Page 10 News List

Pakistan to curb central bank’s power

‘CLEAR NEGATIVE’:A requirement to report planned currency adjustments would hurt the economy and might create a bottleneck in IMF negotiations, analysts said


Pakistan plans to make the central bank report any planned currency adjustments to a committee, a move seen to curb the regulator’s independence as the nation negotiates an IMF bailout.

The State Bank of Pakistan on Friday weakened the rupee for the fifth time this year and raised the key interest rate — moves that roiled the stock market.

Pakistani Prime Minister Imran Khan on Monday told reporters that he found out about the devaluation through news reports and that the committee would help the central bank smooth currency volatility.

This “would clearly mean curtailing the powers of the central bank in independent decisionmaking,” said Amreen Soorani, deputy head of research at JS Global Capital Ltd in Karachi. “It will be a clear negative for the economy and it might create a bottleneck in the IMF negotiations.”

In power since July elections, Khan’s administration is scrambling for funding after inheriting a depleted treasury, but discussions with the IMF to help plug a gap of at least US$12 billion stalled last month after disagreements with the fund over a raft of policy measures.

Meanwhile, foreign-exchange reserves have dwindled to a four-and-a-half-year low and the current-account deficit continues to widen.

While independent in law, the central bank has struggled to assert its authority and several currency devaluations have been countermanded by the Pakistani Ministry of Finance, Revenue and Economic Affairs.

That is despite Pakistani Minister of Finance, Revenue and Economic Affairs Asad Umar telling Bloomberg this year that the bank would be allowed to control monetary policy without government interference.

The government would be looking into “contours and scope” of how the bank manages the currency as the existing way is not working well and needs a review, Economic Affairs Division secretary Noor Ahmed said by telephone from Islamabad.

The bank should intervene in the currency in case of an abnormal fluctuation, he added.

Bank spokesman Abid Qamar declined to comment.

Such moves are likely to be frowned upon by the IMF, Topline Securities Ltd chief economist Saad Hashemy said.

“The ideal approach would be to leave the exchange rate to market forces and also strengthen the capacity and independence of the regulator,” he added.

Pakistan is not alone in witnessing friction between its monetary policy makers and the government. US President Donald Trump has repeatedly criticized the US Federal Reserve for raising interest rates, while in India, the government wants a larger share of the central bank’s capital.

The State Bank of Pakistan on Friday raised its policy rate to 10 percent from 8.5 percent. The nation has raised rates by 4 percentage points this year, making it the most aggressive hiker in Asia.

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