The Real Effective Exchange Rate (REER), however, appreciated by 2.5 percent due to 5.2 percent growth in relative price index - despite a 2.6 percent depreciation in nominal effective exchange rate, said SBP report, issued on Friday.
This gain in nominal depreciation of the weighted index was offset due to higher inflation in Pakistan compared to its primary trading partners and competitor countries. During July-February FY07 the exchange rate stability was maintained despite SBP shouldering $305 million - up front oil bill per month.
Strong vigilance by the Central Bank prevented speculative attacks or volatility and appreciation that emerged during the course of the year, self corrected itself given the changing inflationary trends in domestic and trading countries, said SBP.
External current account deficit for July-February FY07 is 3.8 percent of GDP as against a target of 4.4 percent with trade deficit close to $6.9 billion. The current account deficit has narrowed from month to month due to facilitation from home remittances and forex inflows of $4.6 billion as against $1.9 billion in the corresponding period a year ago.
SBP expects the inflows to go up further with two commercial bank GDRs, sovereign bond issues and quick disbursing assistance that could cumulatively amount to $1.5 to 2.0 billion.
The fall in import growth, say SBP, is in line with expectations. Lower oil prices and absorption of one-off impact of structural changes such as opening the telecom and auto sectors, the slow down in import growth was expected.
As a result the trade deficit was expected shrink. But due to slower than expected growth in exports the trade deficit continued to widen, albeit at a much slower pace, SBP added.