SBP Clarifies the Confusion of Exchange Rates under IMF Program.

The State Bank of Pakistan (SBP) on Friday issued a series of tweets through its official Twitter handle, clarifying that the exchange rate is market determined, and there is no set target for the exchange rate under the International Monetary Fund (IMF) program.

The tweets have come at a time when there seems to be confusion about the exchange rates discussed in the IMF Staff Report on Pakistan, published in July 2019.

In the tweets, the SBP explained the difference between two different economic concepts: the exchange rate, which is a reflection of the balance of payments of a county, and the forward exchange rate, which is determined by the spot exchange rate and differences in interest rates between countries.

The SBP tweeted, “Exchange rate is determined by market forces of demand and supply and is a reflection of existing BOP position. Forward exchange rates are determined by the existing spot rates and Interest rate differentials of the relevant period i.e. time value of money.”

The SBP then further tweeted: “Forward exchange rates (ER) are not a forecast of future exchange rates. IMF Report on Pakistan includes ER assumptions which r not predictions. Under the IMF-supported program there is no agreed target level for exchange rate. ER is market determined.”

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