Governor State Bank of Pakistan (SBP) Dr. Reza Baqir has said that Pakistan is planning to launch bonds in international market to build up foreign exchange reserves. Addressing the monetary policy press conference here on Tuesday, he talked about the massive portfolio investment in government debt securities and termed it the success of SBP's market-based exchange rate policy.

He said that recent foreign portfolio inflows reflect international investors' improved perceptions of Pakistan's credit worthiness. Such inflows help reduce the interest rate on government debt due to the greater demand for government securities, deepen capital markets, and free up domestic banks' resources for lending to the private sector, he added.

He mentioned that the bulk of the improvement in the SBP's reserve adequacy stemmed from the improvement in the current account not portfolio inflows and current inflows comprised only 3.8 percent of total marketable government debt. As such, inflows at current levels represented limited risks.

Governor SBP categorically said that the SBP continues to monitor developments carefully on external sector particularly relate to massive foreign portfolio investment in government securities and has more than adequate buffers to manage any outflows in an orderly manner.

He mentioned that some $2.5 billion has been invested in government securities during this year and the entire amount is some 3.8 percent of the trade able securities. He said the government will very soon launch bonds in international market to build up SBP's foreign exchange reserves.

Governor SBP said that with arrival of massive investment in debt securities, with higher demand, the government will be able to issue bonds at reduced interest rate. While, this foreign investment will also provide an opportunity to banks lend more to private sector as now they have surplus funds.