Transcript LINKAGES BETWEEN FOREIGN EXCHANGE AND MONEY …

LINKAGES BETWEEN
FOREIGN EXCHANGE AND
MONEY MARKETS
By
Muhammad Arif
Senior Joint Director
FSCD
PRESENTATION LAYOUT
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CENTRAL BANK OBJECTIVES
CENTRAL BANK INTERVENTION
STERILIZED INTERVENTION
UNSTERILIZED INTERVENTION
IMPACT THROUGH SBP BALANCE SHEET
BRIEF VISIT TO NDA AND NFA
IMPACT ON NET DOMESTIC ASSETS
IMPACT ON NET FOREIGN ASSETS
CASE STUDIES
SBP’S SWAP DESK
CENTRAL BANK OBJECTIVES
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EXCHANGE RATE STABILITY
RIGHT QUANTITY OF MONEY SUPPLY
INTEREST RATE STABILITY
INFLATION MANAGEMENT
MACRO ECONOMIC BALANCE
CENTRAL BANK INTERVENTION
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INTERVENTION IS SALE & PURCHASE OF
FOREIGN CURRENCY FOR A VARIETY OF
REASONS LIKE
ALTER MONEY SUPPLY
IMPACT THE INTEREST RATE SITUATION
STABILISE EXCHANGE RATE
RESERVE BUILDING
TO MEET NDA AND NFA TARGETS
TYPES OF INTERVENTION
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STERILISED
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UNSTERILISED
UNSTERILIZED INTERVENTION
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IF THE IMPACT ON MONEY SUPPLY IS
NOT NEUTRALIZED THAN INTERVENTION
IS CALLED UNSTERILIZED
THE CHANGE IN MONEY SUPPLY WILL
HAVE AN IMPACT ON INTEREST RATES,
INFLATION LEVEL AND EXCHANGE RATE
THIS TYPE OF INTERVENTION WILL
EFFECT BOTH FX AND MM MARKETS
STERILIZED INTERVENTION
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IMPACT
ON
MONEY
SUPPLY
IS
NEUTRALIZED BY OMO's OR SWAP DESK
THE UNCHANGED MONEY SUPPLY WILL
CAUSE OTHER VARIABLES TO REMAIN
UNCHANGED
THE IMPACT WILL BE RESTRICTED TO
EXCHANGE MARKET ONLY
IMPACT THROUGH SBP
BALANCE SHEET
NDA + NFA = C + DD + TD
= HPM
WHERE
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NFA = F. A. – F.L.
 F.A. INCLUDE GOLD, SDRs, FX RESERVES, DEPOs
WITH OTHER C.Bs. & UNCLASSIFIED ITEMS
 F.L. INCLUDE DEPOSIT OF OTHER C.Bs, SWAP
FUNDS, IMF FACILITY***, UNCLASSIFIED ITEMS
CONTD.
IMPACT THROUGH SBP
BALANCE SHEET
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NDA = D.A. – D.L.
D.A. INCLUDE CLAIMS ON GOVT., CLAIMS ON
PVT SECTOR, CLAIMS ON SCHEDULED BANKS,
OTHER ITEMS NET
D.L. INCLUDE GOVT DEPO WITH C.B.
OR NDA = NCG (Net claims on Gov)+ CPS
(claims on private sector) + CSB (claims on
Scheduled banks) + OIN (other item net)
OIN INCLUDE CAPITAL ACCOUNT, PROFIT &
LOSS ACCOUNT, SBP PROPERTY ETC
IMPACT THROUGH SBP
BALANCE SHEET
ASSETS = LIABILITY + EQUITY
SINCE OIN INCLUDES CAPITAL OF SBP
THEREFORE,
NFA + (NCG+CPS+CSB+OIN) =LIABILITIES
= HPM
CASE STUDIES
CASE 1
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SBP TRANSFER Rs 1 BILLION PROFIT TO
GOVT.
OIN WILL GO UP
NET CLAIM ON GOVT GO DOWN
NDA REMAIN UNCHANGED
NFA & HPM UNAFFECTED
GOVT.’S BUDGETARY POSITION IMPROVE
CASE STUDIES
CASE 2
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SBP BUY $ 1,000,000 FROM INTERBANK
MARKET ATR 59.00
NFA UP BY $1=Rs 59 MIO
NDA REMAIN UNCHANGED
HPM GO UP Rs 59,000,000
CASE STUDIES
CASE 3
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SBP BUY $1MIO FROM KERB ATR Rs 60
WHEN INTERBANK RATE IS STILL 59
NFA UP BY Rs 59
NDA UP BY Rs 1 through OIN
Hpm up by Rs 60
CASE STUDIES
CASE 4
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LOAN FROM WORLD BANK
GOVT’s LIABILITY NOT SBP’s
NFA UP BY LOAN AMOUNT
NDA UNCHANGED
HPM UP
CASE STUDIES
CASE 5
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LOAN FROM IMF
SBP LIABILITY
NFA UNCHANGED
NDA UNCHANGED
HPM UNCHANGED
SBP SWAP DESK
SBP’S SWAP DESK OPERATION
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TO MANAGE RUPEE LIQUIDITY
AS SUBSTITUTE TO OMO
TO MANAGE RESERVE POSITION
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TO MANAGE FUTURE RECEIPTS & PAYMENTS
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TO MANAGE FORWARD PRICES
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THANK YOU