KARACHI, Dec 10: Piqued by reports of an international donor agency’s recommendations on exchange rate readjustments, the Governor of the State Bank of Pakistan, Dr Shamshad Akhtar, announced on Sunday that while the central bank would not intervene to stabilise the rupee exchange rate, it would take punitive action against market speculators.

Speaking at a press conference a day before the opening of the country’s stock markets, she said: “I have said this time and again that the state bank is not in the business of devaluing or artificially backing the currency.”

Dr Akhtar, who became Pakistan's first woman central bank governor in January, expressed displeasure over continued speculation about pressures on the government to manipulate and manoeuvre the exchange rate.

“The International Monetary Fund has not advocated, in its consultations with Pakistan, any depreciation and rather has provided its perspective and analysis of the movements in the real effective exchange rate. The exchange rate assessment offered by analysts is often highly eclectic and subjective in nature as different approaches and methodologies offer different inferences. Abstracting from theoretical debates, the reality is that Pakistan exchange rate regime is determined in the inter-bank market and trends are influenced by supply and demand pressures for foreign exchange at a point in time and by macroeconomic fundamentals at large,” she explained.

Dr Akhtar said the central bank was vigilant, and it would not allow speculators to attack exchange rates. “They will be dealt with in an appropriate manner,” she said.

According to the Reuters news agency, the rupee has depreciated around 2 per cent since Jan 1, 2006, hitting a two-year low on Saturday at 60.96 per dollar.

She informed newsmen that the central bank abandoned the fixed exchange rate regime a long time ago and moved to a floating exchange rate regime in early 2000. “While the initial years of reforms did see sharp depreciation of the rupee, with the emergence of macroeconomic stability, Pakistan has enjoyed a degree of exchange rate stability which has augured well for restoring investors’ confidence,” she said.“As is customary for central banks, the State Bank of Pakistan intervenes in the inter-bank market from time to time, but these interventions are only to reduce excessive volatility in the market. Pakistan, like all oil-importing countries, has to pay a high price for oil imports and the pressures created from the oil import procurements do generate lumpy payments which induce high volatility that is disruptive and generates confusing market signals. It is in this context, foreign exchange interventions for oil support involve SBP providing liquidity to the inter-bank market for petroleum imports to dampen the excessive market volatility. This action is temporary as the injections are subsequently re-purchased but they help in avoiding unhealthy disruptions and preventing attendant risks of speculative opportunities,” she said.