PAKISTAN’S external account signals aren’t comforting. Export momentum is uneven, imports are rebounding and the current account has been oscillating between deficit and modest surplus. But the rupee has been unusually calm. That combination typically shows up as visible pressure on exchange rates in emerging markets. The missing puzzle piece is policy. The State Bank of Pakistan has been purchasing extensively from the exchange market over the past two years. Is the SBP merely smoothing volatility through interventions or actively shaping the market?

Currency market intervention isn’t necessarily controversial, and central banks do routinely step in to dampen disorderly swings, curb speculative overshooting and maintain market functioning. If transparent and proportionate, such action can lower uncertainty, support trade planning and anchor expectations. But there’s a difference between episodic smoothing and persistent purchases. When a central bank repeatedly becomes the dominant buyer in the market (a monopsony), it influences price discovery, even if it insists it’s not targeting a specific exchange rate. Over time, participants stop focusing only on trade flows, remittances and........

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