Pkrevenue.com

Tag: Monetary Policy

  • SBP issues clarification on monetary policy decision

    SBP issues clarification on monetary policy decision

    KARACHI: The State Bank of Pakistan (SBP) on Monday issued a clarification on media reports regarding the monetary policy decisions.

    The SBP said that over the past few weeks, certain sections of the media including op-eds have expressed concerns over the actions of the SBP, particularly with regard to monetary policy decisions and the role of the Covid-related monetary accommodation in fueling the currently elevated inflation outturns.

    The SBP would like to address these concerns and offer some clarifications.

    First, while referencing the status quo monetary policy decisions in the earlier half of 2021, certain op-ed have implied that the central bank had absolved itself of its responsibility to combat inflation when it was rising.

    Such points are all easier made in hindsight but let us remind ourselves what the situation was actually like back in May and July 2021. Demand-side pressures appeared contained with spare capacity in the economy, price pressures were concentrated in a few items, wage growth was subdued and inflation expectations were reasonably anchored.

    Moreover, any inflationary concerns were dwarfed by the fact that Pakistan was going through the 3rd and subsequently the more virulent and uncertain 4th Delta-variant wave of Covid-19. There were a few occasions when micro lockdowns were imposed, while the vaccine rollout was not as extensive as it is currently.

    Globally as well, Covid cases were spiraling upwards, driven primarily by the Delta variant. At such a time of elevated uncertainty about the future trajectory of the pandemic, the Monetary Policy Committee adopted a prudent policy stance by keeping interest rates unchanged, so as to not preemptively disrupt economic activity.

    It is quite easy, in hindsight, to criticize this decision even though no tangible alternatives were proposed in the op-eds or elsewhere at the time.

    By contrast, policymaking involves taking calculated decisions in real-time, when the future is uncertain and considerations need to be carefully balanced. This is especially so in the face of a shock like Covid, for which policymakers have no rulebook.

    Second, in the midst of a once-in-a-century pandemic, it would be imprudent to solely superimpose classical economic theories onto data outturns.

    Policymakers, economists and businesses around the world did not know how the global or domestic economy would evolve in response to mobility restrictions of varying stringencies in different locations.

    Similarly, there was, and in fact continues to be, heightened uncertainty regarding price-setting behavior. For instance, there is an on-going debate in global policy circles and financial markets over whether the ongoing bout of inflation is transitory in nature or not. In the face of an unprecedented shock like Covid, invoking supposed historical, text-book patterns of overheating, as in the op-ed, is facile.

    Under such circumstances, as policymakers around the world acknowledged, the costs of normalizing policies too soon outweigh those of waiting for more clarity on the path of inflation and output.

    As that uncertainty has recently waned in Pakistan, monetary policy is being appropriately normalized.

    Third, some commentary has seemingly attributed the currently higher inflation to the growth in broad money supply.

    In this regard, the SBP would like to point out that at the start of the pandemic in March 2020 and for the subsequent few months, real broad money balances were in fact below the pre-Covid trend. If allowed to continue, a liquidity crisis would have turned into a solvency one, multiplying the contractionary impact of Covid-19 on real GDP growth.

    To stave off this stark outcome, and to extend the needed support to businesses and households, the SBP and the government introduced unprecedented stimulative policy measures.

    As a consequence, real money balances recovered as intended. Not providing this support would have risked worsening and prolonging the loss in output and employment that accompanied the Covid shock.

    Lastly, the SBP would like to reiterate that its policy stance is geared towards price stability, while playing its due role in contributing to economic growth and development.

    Getting this balance right through the various stages following Covid has been the key goal of monetary policy, and helps explain the path of policy actions.

    SBP signs $3bn deposit agreement with Saudi Fund
  • State Bank enhances frequency of MP reviews to eight

    State Bank enhances frequency of MP reviews to eight

    KARACHI: State Bank of Pakistan (SBP) on Friday decided to increase the frequency of monetary policy reviews to eight in a year instead of the existing six reviews.

    In continuation of efforts to make the process of monetary policy formulation more predictable and transparent in line with international best practices, the SBP decided to increase the frequency of monetary policy reviews from six (6) to eight (8) times a year.

    This action will bring the frequency of meetings in line with that incomparable emerging markets. It will also help to enhance the predictability of monetary policy actions, the SBP added.

    Accordingly, the schedule for the next five MPC meetings is as follows:

    1. December MPC meeting: Tuesday, 14th Dec 2021

    2. January MPC meeting: Monday, 24th Jan 2022

    3. March MPC meeting: Tuesday, 8th Mar 2022

    4. April MPC meeting: Tuesday, 19th Apr 2022

    5. June MPC meeting: Friday, 10th Jun 2022

    The advance calendar for the next half-year of MPC meetings will be shared at the time of the June 2022 MPC meeting, the SBP added.

    SBP increases policy rate by 150 basis points to 8.75%
  • SBP increases policy rate by 150 basis points to 8.75%

    SBP increases policy rate by 150 basis points to 8.75%

    KARACHI: The State Bank of Pakistan (SBP) on Friday decided to increase the key policy rate by 150 basis points to 8.75 per cent for next two months from the existing 7.25 per cent.

    At today’s meeting, the Monetary Policy Committee (MPC) decided to raise the policy rate by 150 basis points to 8.75 percent. This reflected the MPC’s view that since the last meeting, risks related to inflation and the balance of payments have increased while the outlook for growth has continued to improve, the SBP said.

    The heightened risks related to inflation and balance of payments stem from both global and domestic factors. Across the world, price pressures from Covid-induced disruptions to supply chains and higher energy prices are proving to be larger and longer-lasting than previously anticipated.

    In response, central banks have generally begun to tighten monetary policy to keep inflation expectations anchored. In Pakistan too, high import prices have contributed to higher-than-expected CPI, SPI, and core inflation outturns.

    At the same time, there are also emerging signs of demand-side pressures on inflation, and inflation expectations of businesses have risen on account of further upside risks from domestic administered prices.

    With respect to the balance of payments, the current account deficits in September and October have been larger than anticipated, reflecting both rising oil and commodity prices and buoyant domestic demand. The burden of adjusting to these external pressures has largely fallen on the rupee.

    As a result of these developments, the balance of risks has shifted away from growth and toward inflation and the current account faster than expected. Accordingly, the MPC was of the view that there is now a need to proceed faster to normalize monetary policy to counter inflationary pressures and preserve stability with growth.

    Today’s rate increase is a material move in this direction. Looking ahead, the MPC reiterated that the end goal of mildly positive real interest rates remains unchanged and, given today’s move, expects to take measured steps to that end.

    In reaching its decision, the MPC considered key trends and prospects in the real, external and fiscal sectors, and the resulting outlook for monetary conditions and inflation.

    The economic recovery underway since the start of FY21 continues, as reflected in most high-frequency indicators of domestic demand―including automobile sales, POL (petroleum, oil and lubricants) sales, and electricity generation―as well as the strength of imports and tax revenues.

    Notwithstanding some moderation in September due to a high base effect and some supply chain disruptions, LSM registered broad-based growth of 5.2 percent (y/y) in Q1-FY22, led by production of consumer goods (both durable and non-durable), construction-allied, and export industries.

    In agriculture, production levels of all major Kharif crops except cotton are estimated to have reached all-time highs. Cotton production has also rebounded, with arrivals at ginneries growing by 80 percent as of 1st November compared to the same period last season. Overall, the economic recovery appears increasingly durable and self-sustaining, against the backdrop of rapidly falling Covid cases and the government’s vigorous vaccination roll-out.

    Looking ahead, rising input costs and normalization of macroeconomic policies are likely to lead to some moderation in the growth of industrial activity. Nevertheless, this could be more than offset by the improved outlook for agriculture, such that risks to the growth forecast of 4-5 percent in FY22 are tilted to the upside.

    Persistently high international commodity prices and strong domestic activity kept the current account deficit elevated at $3.4 billion in Q1-FY22.

    The deficit widened to$1.66 billion in October from $1.13 billion in September due to high energy prices and an uptick in services imports, despite some moderation in non-energy imports. There was also a moderate month-on-month decline in exports and remittances.

    The current account deficit for FY22 is expected to modestly exceed the previous forecast of 2-3 percent of GDP.

    While the market-based exchange rate has played its due role as a shock absorber, it has borne a considerable burden in terms of adjusting to the widening current account deficit. The rupee has depreciated by a further 3.4 percent since the last MPC meeting. The US dollar also appreciated against most emerging market currencies since May as expectations of tapering by the Federal Reserve have been brought forward. However, the fall in the value of the rupee since May has been comparatively large. As other adjustment tools normalize, including interest rates and fiscal policy, pressures on the rupee should abate.

    The overall fiscal deficit improved to 0.8 percent of GDP in Q1-FY22 from 1 percent in the same period last year. This was driven by the above-target growth in FBR tax revenues (38.3 percent (y/y)) despite higher refunds and a significant reduction in the sales tax rate on POL. However, non-tax revenue fell by 22.6 percent (y/y) due to a sharp decline in petroleum development levy (PDL) collection. In addition, the primary surplus was 28.6 percent lower than in Q1-FY21, due to a 33 percent (y/y) growth in non-interest spending. Looking ahead, it will be important to achieve the fiscal consolidation plan in the budget to help restrain domestic demand. A higher-than-planned primary fiscal deficit would likely worsen the outlook for inflation and the current account and would undermine the durability of the recovery.

    Real money supply growth has accelerated in recent months to above-trend levels.  With the economic recovery on a sound footing, there is a need to pare back this growth as part of the broader move toward normalizing monetary conditions. The MPC noted that the recent increase in banks’ cash reserve requirements would help in this regard.

    Inflationary pressures have increased considerably since the last MPC meeting, with headline inflation rising from 8.4 percent (y/y) in August to 9 percent in September and further to 9.2 percent in October, mainly driven by higher energy costs and a rise in core inflation.

    The momentum of inflation has also picked up significantly, with average m/m inflation in the last two months at an elevated 2 percent and all sub-components of the CPI basket showing an acceleration. Core inflation has also picked up in the last two months, rising to 6.7 percent (y/y) in both urban and rural areas on the back of house rents, cloth and garments, medicines, footwear, and other components.

    In addition, inflation expectations of households remain elevated and those of businesses have risen sharply. Looking ahead, global commodity prices and potential further upward adjustments in administered prices of energy pose upside risks to the average inflation forecast of 7-9 percent in FY22.

    The MPC will continue to carefully monitor developments affecting medium-term prospects for inflation, financial stability and growth and stands ready to respond appropriately.

    SBP decides early announcement of monetary policy
  • Key policy rate may up by 100bps in hawkish stance

    Key policy rate may up by 100bps in hawkish stance

    KARACHI: The State Bank of Pakistan (SBP) is set to announce monetary policy on November 19, 2021 and analysts believe the central bank may remain hawkish.

    Analysts at Arif Habib Limited said that the monetary policy committee of SBP will convene on Friday, November 19, 2021 to announce the monetary policy for the next two months.

    The analysts expect that SBP to remain hawkish, raising its policy rate for the second time since the beginning of the current fiscal year 2021/2022 and at a much higher magnitude of 100 basis points – the highest hike in almost 2.3 years – taking the total cumulative increase in FY22TD to 125bps. With this, the revised policy rate is expected at 8.25 per cent.

    To recall, the SBP, continuing with its tightening policy, recently announced a 100bps hike in Cash Reserve Requirement too.

    A shift towards ‘a more hawkish stance’ from the earlier ‘gradual and calibrated’ might be evident in this monetary policy meeting as inflation worries are rumbling more clearly than before.

    Inflation in Pakistan has increased markedly with the resumption of economic activities – but as supply-side inflation has subsided, demand-side inflation has overshot.

    Headline inflation initially remained low averaging at 8.7 per cent during the first four months of the fiscal year 2021/2022, but now with waning base effect, it has started accelerating, raising concerns.

    Clearly, the inflationary pressures reflect the upside arising in global energy and commodity prices and moreover, do not look ready to subside anytime soon.

    We have seen some of the central banks in the regional markets reacting as consumer prices are being pressured by global supply-chain disruptions and costlier energy and food supplies.

    Domestically, there has been a positive development on the COVID front, in terms of reduced infections/deaths and faster vaccinations.

    The overall improved healthcare conditions coupled with the economic performance of high-frequency indicators (such as auto and cement sales) as well as LSM numbers (2MFY22: +7.3% YoY) evidently signal that the overall economic activity is on the cusp of a strengthening revival.

    The domestic recovery that is likely to push GDP growth higher than initially anticipated is adding to inflationary pressures and thus, the prudent policy approach for the SBP would be to tack in a more hawkish path to manage these risks.

    SBP decides early announcement of monetary policy
  • SBP decides early announcement of monetary policy

    SBP decides early announcement of monetary policy

    KARACHI: The State Bank of Pakistan (SBP) has altered its monetary policy announcement date, advancing it to November 19, 2021, from the initially scheduled date of November 26, 2021.

    (more…)
  • SBP announces first policy rate increase in 26 months

    SBP announces first policy rate increase in 26 months

    KARACHI: The State Bank of Pakistan (SBP) on Monday announced first increase in key policy rate by 25 basis points in past 25 months.

    Previously, the SBP announced the increase in policy rate of 100 basis points to 13.25 per cent.

    The SBP kept the policy rate unchanged at 13.25 per cent till March 17, 2020 when it decided to reduce the policy rate by 75 per cent to 12.50 per cent.

    Due to coronavirus pandemic, the central bank brought down the policy rate to 7 per cent in short span of time and maintained at this level for the past many months. The SBP reduced the policy rate to 7 per cent in its announcement on June 25, 2020.

    At its meeting on September 20, 2021, the Monetary Policy Committee (MPC) decided to raise the policy rate by 25 basis points to 7.25 percent.

    Since its last meeting in July, the MPC noted that the pace of the economic recovery has exceeded expectations.

    This robust recovery in domestic demand, coupled with higher international commodity prices, is leading to a strong pick-up in imports and a rise in the current account deficit.

    While year-on-year inflation has declined since June, rising demand pressures together with higher imported inflation could begin to manifest in inflation readings later in the fiscal year.

    With growing signs that the latest COVID wave in Pakistan remains contained, continued progress in vaccination, and overall deft management of the pandemic by the government, the economic recovery now appears less vulnerable to pandemic-related uncertainty.

    As a result, at this more mature stage of the recovery, a greater emphasis is needed on ensuring the appropriate policy mix to protect the longevity of growth, keep inflation expectations anchored, and slow the growth in the current account deficit.

    In line with this shift in the economic outlook, the MPC was of the view that the priority of monetary policy also needed to gradually pivot from catalyzing the recovery after the Covid shock toward sustaining it.

    As foreshadowed in previous monetary policy statements, the MPC noted that this rebalancing would be best achieved by gradually tapering the significant monetary stimulus provided over the last 18 months.

    The MPC noted that over the last few months the burden of adjusting to the rising current account deficit had fallen primarily on the exchange rate and it was appropriate for other adjustment tools, including interest rates, to also play their due role.

    The MPC noted that the stance of monetary policy is still appropriately supportive of growth, with real interest rates remaining negative on a forward-looking basis. Looking ahead, in the absence of unforeseen circumstances, the MPC expects monetary policy to remain accommodative in the near term, with possible further gradual tapering of stimulus to achieve mildly positive real interest rates over time.

    The pace of this possible further gradual tapering would be informed by updated information on the continued strength of demand growth and the stance of fiscal policy, amongst other factors.

    In reaching its decision, the MPC considered key trends and prospects in the real, external and fiscal sectors, and the resulting outlook for monetary conditions and inflation.

    With a supportiveFY22 budget and accommodative monetary policy, most high-frequency domestic demand indicators such as automobiles, POL (petroleum, oil and lubricants) sales, cement sales and electricity generation continue to depict robust growth. This growth is mirrored in the strength of imports and tax collections.

    LSM registered strong growth in June (18.5 percent (y/y)) before moderating in August to 2.2 percent (y/y), in line with typical seasonal patterns. The services sector is also rebounding strongly; latest Google Community Mobility Reports show that activity across grocery stores, restaurants, and shopping centers during July and August rose above pre-Covid levels. In agriculture, the decline in the area under cultivation of cotton is expected to be compensated by an increase in area for rice, maize, and sugarcane. Based on these trends, growth in FY22 is now expected toward the upper end of the forecast range of 4-5 percent, notwithstanding some greater uncertainty with respect to spillovers from the evolving situation in Afghanistan.

    The current account deficit rose to $0.8 billion in July and $1.5 billion in August, reflecting both vigorous domestic demand and high global commodity prices. While remittances remained strong, growing by 10.4 percent (y/y) during July-August and exports also performed reasonably well (averaging $2.3 billion per month), they were outstripped by imports. In response, the rupee depreciated by 4.1 percent since the last MPC meeting. The MPC noted that many other currencies have also depreciated recently as expectations of tapering by the Federal Reserve have been brought forward.

    The MPC noted that the flexible market-based exchange rate regime has performed well since its introduction in June 2019, including through the Covid shock. It has overseen a healthy modulation of the current account and supported a critical build-up in the country’s gross and net FX reserves despite external pressures. Under this regime, the SBP does not suppress an underlying trend in the exchange rate and any interventions are limited to address disorderly market conditions. Since its floatation, the rupee has moved in an orderly manner in both directions and has depreciated by only 4.8 percent to date, much less than many other emerging market currencies over the same period. Since the rupee was floated, SBP’s gross foreign exchange reserves have nearly tripled to a record $20 billion, while net international reserves have risen by nearly $16 billion between end-June 2019 and end-August 2021.

    The MPC observed that while the flexible exchange rate has appropriately played its role as a shock absorber, it is important that its role be complemented by strong exports, targeted measures to curb non-essential imports, and appropriate macroeconomic policy settings to contain import growth.

    In FY21, prudent management of the public finances facilitated fiscal consolidation for the second year in a row despite Covid, with the primary deficit declining by around ½ percentage points to 1.4 percent of GDP. This improvement largely stemmed from strong growth in tax and petroleum development levy (PDL) revenues, together with significant deceleration in non-interest expenditures. Following the seasonal end-year release of expenditure allocations, the fiscal impulse was strongly expansionary in the final quarter of FY21. In the first two months of FY22, FBR revenue grew by over 40 percent (y/y)while Federal PSDP releases rose to an all-time high for this period, equivalent to nearly 44 percent of their budgeted amount for the full year. It will be important to support tax revenue growth and carefully monitor outturns through the year to ensure the budget remains on track. Any unforeseen slippages in the fiscal stance would further bolster domestic demand, imports and inflation.

    The MPC noted that accommodative financial conditions have provided significant support to the growth recovery since the start of FY21. Following historic cuts in the policy rate and the introduction of SBP Covid-related support packages, private sector credit grew by more than 11 percent during FY21, on the back of consumer loans (mainly auto finance and personal loans) followed by a broad-based expansion in credit for fixed investment and finally working capital loans. The MPC felt that some macro prudential tightening of consumer finance may also be appropriate to moderate demand growth as part of the move toward gradually normalizing monetary conditions.

    Inflation fell from 9.7 percent (y/y) in June to 8.4 percent in both July and August. In addition to favorable base effects, this decline reflects continued deceleration in administered prices of energy due to the reduction in PDL and sales tax on petroleum products. Core inflation also fell in both urban and rural areas in August. Nevertheless, the momentum of prices remains relatively elevated, with month-on-month increases of 1.3 percent in July and 0.6 percent in August. In addition, inflation expectations of both households and businesses have drifted up and wage growth has picked up as the recovery has strengthened.

    Looking ahead, the inflation outlook largely depends on the path of domestic demand and administered prices, notably fuel and electricity, as well as global commodity prices. The MPC will continue to carefully monitor developments affecting medium-term prospects for inflation, financial stability and growth and stands ready to respond appropriately.

    SBP issues annual schedule for monetary policy
  • FPCCI recommends cut in key policy rate by 100bps

    FPCCI recommends cut in key policy rate by 100bps

    KARACHI: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has recommended a reduction of 50 – 100 basis points in the key policy rate, according to a statement issued on Monday.

    The existing policy rate is seven per cent.

    A monetary policy survey – conducted recently prior to SBP’s Monetary Policy Committee (MPC) meeting later in this month – conducted by Policy Research Unit (PRU), Policy Advisory Board, FPCCI has recommended a reduction in the policy rate by 50-100 basis points.

    The FPCCI recommended that key policy rate should not be above six per cent to promote business activities and economic growth.

    The president of the apex body Mian Nasser Hyatt Maggo in a statement on Monday said that the policy interest rate must not be over 6 per cent. “And if SBP wants to promote business activities and economic growth in the country, it should be brought down to 5 per cent.”

    He also pointed out that policy interest rate in the region is 3-4 per cent only and we have to compete with the region.

    FPCCI has recently established Policy Advisory Board under the chairmanship of former Federal Secretary Mohammad Younus Dagha.

    It aims to provide research-based expert input for policy advocacy, ease of doing business initiatives and formalizing the business community’s inputs on policies to various governmental departments, institutions and departments.

    Policy Advisory Board of FPCCI aims to formalize collective opinion of the private-sector for the formulation of business-friendly policies; with an objective to foster economic growth and development.

    The survey results show that 84 per cent of the businessmen and researchers in monetary policy suggest that there should be no increase in the policy rate and nearly half of them suggest a cut between 50-100 bps.

    The policy brief issued on the occasion has noted with a sigh of relief that the core inflation in Pakistan – the most definitive indicator for setting up the policy rate for any central bank – has significantly subsided to 6.3 per cent in August 2021 as compared to 6.9 per cent in July 2021.

    PKR stability must for economic growth: Anjum Nisar
  • SBP to announce monetary policy on September 20

    SBP to announce monetary policy on September 20

    KARACHI: The State Bank of Pakistan (SBP) on Friday said that monetary policy for the next two months will be announced on September 20, 2021.

    The SBP said that the Monetary Policy Committee of SBP will meet on Monday, September 20, 2021, at SBP Karachi to decide about the Monetary Policy.

    It would be pertinent to mention here that SBP issued an advanced calendar of MPC meetings earlier in May 2021 through a press release (https://www.sbp.org.pk/press/2021/Pr-20-May-21.pdf) and all the meetings are being held accordingly.

    The advance calendar is also available at: https://www.sbp.org.pk/m_policy/mp-calendar.asp

    In the last monetary policy announcement on July 27, 2021, the Monetary Policy Committee (MPC) decided to maintain the policy rate at 7 percent.

    The decision has been taken because since its last meeting in May, the MPC was encouraged by the continued domestic recovery and improved inflation outlook following the recent decline in food prices and core inflation.

    In addition, consumer and business confidence have risen to multi-year highs and inflation expectations have fallen.

    As a result of these positive developments, growth is projected to rise from 3.9 percent in FY21 to 4 – 5 percent this year, and average inflation to moderate to 7 – 9 percent this year from its recent higher out-turns.

    Imports are expected to grow on the back of the domestic recovery and rebound in global commodity prices, albeit more moderately than in FY21.

    The MPC noted that the market-based flexible exchange rate system, resilience in remittances, an improving outlook for exports, and appropriate macroeconomic policy settings should help contain the current account deficit in a sustainable range of 2 – 3 percent of GDP in FY22.

    Notwithstanding this moderate current account deficit, the country’s foreign exchange reserves position is expected to continue to improve this year due to adequate availability of external financing.

    Against this backdrop, the MPC felt that the uncertainty created by the ongoing fourth Covid wave in Pakistan and the global spread of new variants warrants a continued emphasis on supporting the recovery through accommodative monetary policy.

    State Bank decides to maintain policy rate at 7pc
  • Tarin chairs meeting of monetary, fiscal policies board

    Tarin chairs meeting of monetary, fiscal policies board

    ISLAMABAD: Finance Minister Shaukat Tarin on Wednesday chaired a meeting of the Monetary and Fiscal Policies Co-ordination Board.

    Other members of the Board present in the meeting were the Adviser to the Prime Minister on Commerce & Investment, Deputy Chairman Planning Commission, Governor SBP, Dr. Asad Zaman and senior officials of the Finance Division.

    Finance Minister briefed the Members of the Board on the current economic situation of the country and highlighted the major incentives given in the budget due to which business confidence is improving and economy is moving on strong economic recovery path.

    It was also informed that all key economic indicators relating to real sector of the economy, fiscal sector, monetary and external sectors are going well and government is proactively executing all policy measures to achieve the major socio-economic targets of the current fiscal year.

    He also highlighted the possible risks to the economic activities and strategy to counter these risks which were appreciated by the members of the Board.

    Secretary Finance briefed the Members of the Board on budgetary allocations for various activities and informed about the ways and means to maintain the fiscal discipline.

    He also shared the strategy to contain the non-development expenditure with the focus to optimally utilize resources of the country and improve the service delivery at large for the common man.

    Governor SBP informed the Board about Monetary Policy stance. He shared the analysis of the SBP on policy rate, credit availability, exchange rate movement and inflationary situation.

    He also explained that policy mix is supporting the growth momentum and highlighted the increase in commodities prices in the global market which have implications for higher import bill and inflation.

    It was also informed that it is encouraging signs that exports are picking up along with increase in import of machineries which will enhance productive capacity of the economy and create exportable surplus.

    He also explained the policy measures which SBP is executing to encourage business activities in various sectors of the economy and highlighted that there are ample opportunities for investors/exporters and youth of the country to take benefits from SBP’s schemes to extend or initiate their business.

    Deputy Chairman Planning Commission apprised the meeting about the execution of development activities.

    He also highlighted the possible options for resource mobilization and to utilize them effectively for development of potential sectors of the economy.

    The Adviser to the PM on Commerce and Investment briefed about the structure of trade of the country along with major destinations.

    He also presented the various measures which are under execution to enhance exports in potential areas. He also mentioned the various categories of imports which can be rationalized by focusing on their substitutes.

    A comprehensive road map was also discussed to minimize trade deficit of the country. It was also highlighted that fiscal and monetary facilitation will continue for potential sectors of the economy.

    Dr. Asad Zaman appreciated the major fiscal and monetary measures of the government which are supporting the business activities. He also highlighted the potential areas where Pakistan has comparative advantages in export market and also identified some low hanging fruits for import substitution.

    He emphasized that the goal of well-coordinated Monetary and Fiscal Policies is to achieve full employment.

    Minister for Finance & Revenue emphasized the importance of Monetary and Fiscal Policies Co-ordination Board for designing and executing policies to achieve economic targets and overcome the possible risks.

    He advised to make this forum more effective for maintaining better coordination of policies to achieve the planned macroeconomic goals.

    The chair urged that the Board should be more proactive in reviewing the impact of Fiscal and Monetary Policies on economic growth, employment and external sector of the economy, he concluded.

  • SBP likely to keep policy rate unchanged at 7%

    SBP likely to keep policy rate unchanged at 7%

    KARACHI: The State Bank of Pakistan (SBP) has scheduled to announce monetary policy for next two months on Tuesday July 27, 2021.

    The present key policy rate is 7 per cent. Analysts believe that the central bank is likely to keep the policy rate unchanged.

    The analysts at Arif Habib Limited expect the SBP to keep the policy rate unchanged at 7 per cent in the upcoming monetary policy statement.

    To recall, the Monetary Policy Committee (MPC) convened last in May 2021 and noted that further improvement has been witnessed in the overall domestic recovery. The GDP forecast is at 3.94 per cent for FY21.

    Therefore SBP might consider keeping the rate unchanged in order to boost domestic demand despite running a negative interest rate of 3 per cent at present. Moreover, the statement also hinted at a very gradual and measured monetary tightening stance, when the need arises.

    It also highlighted that core inflation continues to appear restrained and although headline numbers have been inclining, inflation remains manageable. Moreover, inflation, as per SBP, is likely to hover within the 5-7 per cent range in the medium-term. Therefore, it seems likely that the central bank would let the real interest rates remain negative in the medium term.

    On the external front, Pakistan closed FY21 with historic high levels of exports (goods) and remittances.

    The overall trade too remained high as economic activities ramped up. All said, what could have stayed in green ended in red; Current Account posted a deficit of USD 1.9 billion in FY21, with a huge USD 1.6 billion deficit recorded alone in the month of June 2021.

    However, on a YoY basis, current account deficit has come down by 58 per cent during FY21, the lowest deficit after 10-years (Surplus of USD 214 million in FY11).

    Total imports increased by 17.6 per cent YoY to USD 61.6 billion during FY21 while total exports increased by 12.8 per cent YoY to USD 31.6 billion during this period. Remittances were a silver lining, reaching USD 29.4 billion by FY21 end (up 27 per cent YoY).