Rupee depreciation, rising inflation: Senate panel dissatisfied with explanations

ISLAMABAD: A meeting of the Senate Standing Committee on Finance has expressed total dissatisfaction to a briefing by Finance Ministry’s and the State Bank of Pakistan (SBP) over recent depreciation of exchange rate and its implication on inflation, and stated that persistent increase in the prices have made the people “screaming”.

As proceedings of the committee started, the members, and the chairman of the committee, Talha Mehmood, one after another termed the government policies “disastrous” for the country, simply as even after massive devaluation there was only three percent increase in exports; while, its impact on inflation has been untamable.

As a result, people initially bore the brunt of the price hike but now have started “screaming”, said the chairman who called for providing some relief to them because they are least concerned whether exchange rate is artificial or original or genuine.

“We are totally dissatisfied with your briefing and will issue a letter to the Governor SBP,” said the chairman as some members termed the statement made by him in the UK about exchange rate “uncalled for”. Deputy Governor SBP Murtaza acknowledged that the movement in exchange rate affects inflation.

Rupee continues to strengthen, closes at over one-month high

However, he said that the recent depreciation of exchange rate did not have much impact on inflation but inflation in the local market was being stoked by the rising prices of food commodities and energy prices in the global market.

The chairman of the committee said that the rupee was on a slide against the dollar primarily because the dollars are being smuggled from Pakistan into Afghanistan and also referred to a person from whom huge amount dollars were seized in Lahore.

The SBP deputy governor agreed with the committee chairman that the supply and demand situation in the market is primary benchmark for determination of exchange rate.

He also admitted that the government intervene in the market over disorderly condition.

The meeting was informed that flexible exchange rate was adopted after going into the IMF programme, the meeting was informed.

As the proceedings progressed, members one after another said that the rupee may go over Rs200 against the dollar as per predictions.

Senator Sherry Rehman said that the SBP did not respond to a question with respect to recent depreciation of rupee against the dollar and it seems that the government does not have any plan.

She also questioned the statement made by the governor SBP and asked what the need of making such a statement was.

Rupee continues to appreciate for 5th successive session, closes at 170.54

Senator Kamil Ali Agha said that the governor SBP is not a political office and should not make a political statement. The government and the SBP are responsible to stabilise the value of the rupee, Agha added.

Senator Sadia Abbasi said that budget of his house has increased by 60 percent during the one year and even the prices of commodities at Utility Stores Corporation have been increased.

Senator Mussadik Malik said that during the last three years, the rupee depreciated by 50 percent, while exports increased by three percent and one percent deprecation of rupee adds Rs3 billion in the capacity payment for the power sector.

Senator Agha said that Ishaq Dar was being named as “Ishaq Dollar” because of his interference with the dollar but today there are over 24 hands involved in it.

The committee decided to seek clarification on the SBP governor’s statement and also sought a mechanism with respect to intervention in the exchange rate market from the SBP.

The committee also decided to continue discussion on the question moved in the senate by Senator Walid Iqbal and referred to the committee with respect to criteria being adopted and rules for posting of civil servants in the international organisations because it seems that most of the people were being posted from the secretariat group.

Senator Abbasi said that only few people are being posted in international organisations such as the World Bank, the IMF, etc, and no merit is followed.

The committee also sought detailed briefing on hot money including as to how much money was invested by the institutions and how much profit was taken out from them.

The SBP officials said that the interest rate was increased to attract hot money but the economic indicators with high current account deficit, less foreign exchange reserves and inflation-led economic conditions necessitated increase in discount rate to bring about stability by suppressing demand and over heat in the economy.

Copyright Business Recorder, 2021