During its meeting on Tuesday, the Monetary Policy Committee (MPC) announced to raise the benchmark policy rate by 100 basis points to 21 percent.
(more…)Tag: policy rate
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Headline inflation may soar to historic high; further rate hike likely
Pakistan headline inflation may soar to historic high in March 2023, which is likely to force the central bank for further interest rate hike.
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Pakistan set to jack up benchmark interest rate on March 02
KARACHI: Pakistan is set to raise benchmark interest rate as the central bank has announced the monetary policy committee (MPC) to meet ahead of schedule on March 02, 2023.
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High inflation may compel SBP to further raise interest rate to 18pc: analysts
KARACHI: State Bank of Pakistan (SBP) may further raise benchmark interest rate by 2 per cent to 18 per cent from existing 16 per cent during next six months owing to high inflation, analysts said on Tuesday.
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SBP announces monetary policy on October 10, 2022
KARACHI: The State Bank of Pakistan (SBP) on Thursday said it will announce monetary policy on October 10, 2022.
The Monetary Policy Committee of SBP will meet on Monday, October 10, 2022 at SBP Karachi to decide about the Monetary Policy. Later on, SBP will issue the Monetary Policy Statement through a press release on the same day.
READ MORE: SBP likely to keep policy rate unchanged at 15%
According to analysts at KASB KTrade the committee to keep the policy rate unchanged at 15 per cent. Our stance is underpinned by: 1) the sharp decline in economic activity after policy reforms, 2) wide-scale flooding further restricting economic activity, and 3) easing external account imbalances.
Recent months have witnessed a sharp decline in economic activity. Fiscal reforms and monetary policy actions have taken a toll on Pakistan’s industrial activity. The first two months of the fiscal year saw cement dispatches fall by 35 per cent YoY, fertilizer off-take decline by 33 per cent YoY, OMC sales dip by 25 per cent YoY, and car sales plummet by 50 per cent YoY.
READ MORE: SBP keeps benchmark rate unchanged at 15% amid rising inflation
The wide-scale flooding has also significantly affected Pakistan’s economic output because of infrastructural damages to the road networks. Overall, we project a 2pps reduction in Pakistan’s GDP growth rate to around 1.5-2.0 per cent in FY23.
Policy reforms under the IMF program have also alleviated Pakistan’s external account imbalances. The first three months of the fiscal year saw the trade imbalance decline by 21 per cent YoY to USD 9.2 billion. Moreover, Sep22’s figure witnessed a decline of 31 per cent YoY to USD 2.9 billion. The recent fall in global commodity prices, particularly oil, has significantly improved Pakistan’s external account prospects. These factors are reflected in the recent trend of the Pak Rupee, which has appreciated by 7 per cent over a 10-day period.
READ MORE: Poll sees no policy rate change in August 22, 2022 meeting
The past few months have witnessed inflation touch decades-high level, averaging 25 per cent during 3MFY23. Inflationary pressures have largely stemmed from 1) high global commodity prices, 2) higher food prices resulting from supply constraints and flood damages, 3) revision of the domestic petroleum taxation structure and 4) higher electricity tariffs. Real interest rates, in turn, have sustained deep into negative territory, hovering around -9 per cent during the fiscal year. The bulk of the inflationary pressures, however, remains supply-led as core inflation registered at 15.7 per cent in Sep22 (vs. CPI inflation of 23.2 per cent).
READ MORE: Pakistan hikes key policy rate by 125 basis points to 15%
The analysts project inflation to taper off over the medium run as global oil prices continue their descent and the Pak Rupee sustains its appreciation.
Secondary market yields have come off recently given the material slowdown in economic activity and easing external account imbalances. Short-term yields have witnessed a decline of nearly 35bps, suggesting market expectations of peaked interest rates.
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Pakistan may see further 100bps hike in policy rate
KARACHI: Pakistan central bank is scheduled to review policy rate on July 07, 2022 and analysts believed an increase of up to 100 basis points due to surge in inflation.
A report of K Trade Research issued on Tuesday, stated that the State Bank of Pakistan (SBP) scheduled its monetary policy meeting for July 07, 2022 to set policy rates for the next six weeks.
READ MORE: SBP increases interest rate by 150bps to 13.75%
“Given the recent inflationary wave, we anticipate another 75-100 basis points hike in the policy rate to 14.5-14.75 per cent,” according to the analysts.
The SBP in its monetary policy announcements on April 7, 2022 and May 23, 2022 has already increase policy rate by 250 basis points and 150 basis points, respectively. The central bank increased the policy rate by 400 basis points from 9.75 per cent to 13.75 per cent in just last two announcements.
READ MORE: SBP may increase key policy rate by 100bps: poll
Inflation for June 2022 touched 13-year high levels of 21.3 per cent, driven by the reversal of petroleum and electricity subsidies. Real interest rates for the month fell to nearly -8.0 per cent from 0 per cent in May 2022.
Moreover, core Non-Food Non-Energy (NFNE) inflation has entered double-digits (12.3 per cent in Jun 2022), indicating strong underlying demand in the economy.
The analysts project inflation to average around 16.0 per cent in current fiscal eyar 2022/2023, given the re-implementation of taxes in the petroleum pricing structure.
READ MORE: SBP may raise policy rate by 100bps to 13.25%
Moreover, elevated prices of both RLNG and Coal will further push electricity prices to higher levels. Notably, electricity production cost from imported coal (20 per cent of power mix) is up nearly 4x YoY, and electricity production cost from RLNG (20 per cent of power mix) is up 2.5x YoY.
On a forward-looking basis, we estimate real interest rates stand at -2.3 per cent, strengthening our case for another policy rate hike.
READ MORE: Policy rate may rise as T-Bill yields increase sharply
External imbalances remain elevated as the trade deficit for Jun 2022 stood at USD 4.8 billion, driven by elevated energy and commodity prices. Moreover, material concerns have arisen over the potential sustainability of exports, given the economic slowdown in key markets. Notably, textile players are anticipating a 15-20 per cent reduction in volumetric export off-take in 2022/2023, potentially exacerbating the external imbalances.
READ MORE: State Bank enhances frequency of MP reviews to eight
The analysts believe a tight monetary stance over the medium is necessary to ensure Pakistan’s economy weathers the global inflationary wave and the ensuing external and fiscal imbalances.
The short tenor secondary market yields have crossed 15.0 per cent and the 3-month treasury-bill cut-off yields touched 15.23 per cent in the latest auction, hinting at market expectations of another hike.
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SBP jacks up policy rate by 6.75% to 13.75%
ISLAMABAD: The State Bank of Pakistan (SBP) has increased the key policy rate by 6.75 per cent during September 2021 to May 2022, according to Economic Survey of Pakistan 2021/2022 released on Thursday.
The survey stated that Pakistan’s economy has witnessed a V-shaped recovery in 2020-2021 after witnessing a contraction of 0.9 percent in FY2020.
After the COVID outbreak, the policy rate was reduced by 6.25 per cent within short span of less than three months, during March-June 2020. This was the largest policy rate cut in emerging market economies.
READ MORE: Tax to GDP ratio estimated at 10.8% in FY22: Economic Survey
During FY2021, the SBP maintained an accommodative monetary policy stance, by keeping the policy rate unchanged at 7.0 percent throughout FY2021.
Besides, SBP provided liquidity and regulatory support to businesses and households during the challenging times. The economic policy was implemented with a prudent mix which supported the economic recovery without putting any pressure on macroeconomic imbalances.
With heightened uncertainty due to COVID-19, the Monetary Policy Committee for the first time considered it appropriate to provide some forward guidance on monetary policy in its January 2021 meeting, to facilitate policy predictability and decision making by economic agents.
In the absence of unforeseen developments, the Monetary Policy Committee (MPC) expected monetary policy settings to remain unchanged in the near term.
READ MORE: LSM posts 10.4% growth in July – March: Economic Survey
Moreover, in the subsequent monetary policy decisions during FY2021, the MPC has maintained the policy rate of 7.0 percent to nurture the economic recovery.
At the end of first quarter FY2022, policy rate has increased by 25 basis points (bps) to 7.25 percent. The decision was primarily based on observation of excess aggregate demand and more than expected economic recovery as reflected by rising high import bill and increasing current account deficit.
The objective of monetary policy was shifted to ensuring the appropriate policy mix to protect the longevity of growth, keep inflation expectations anchored, and control the current account deficit.
In subsequent Monetary Policy decisions announced in November and December, 2021, policy rate was increased by 150 bps and 100 bps to 8.75 percent and 9.75 percent, respectively. The decision was made due to heightened risks associated with inflation and balances of payments, which stemmed from both global and domestic factors.
READ MORE: Agriculture surpasses FY22 growth target: Economic Survey
In Pakistan, high import prices have contributed to higher-than-expected inflation outturns. At the same time, there were also emerging signs of demand-side pressures on inflation from domestic administered prices.
In December, 2021 Monetary policy decision, MPC explained that the goal of mildly positive real interest rates was now close to being achieved. Looking ahead, the MPC expected monetary policy settings to remain broadly unchanged in the near-term.
Resultantly, policy rate has kept unchanged at 9.75 percent in two successive decisions held on January and March, 2022.
However, policy rate was increased by 250 bps to 12.25 percent from 9.75 percent in an unscheduled meeting on 07th April 2022, to address significant uncertainty amidst rising global commodity prices and domestic political situation. The inflation outlook had deteriorated and risks to external stability had increased for FY2022. Externally, futures market suggests that global commodity prices, including oil, are likely to remain elevated for longer and the Federal Reserve is likely to increase interest rates more quickly than previously anticipated, likely leading to a sharper tightening of global financial conditions.
READ MORE: Per capita income in Pakistan rises to $1,798 in 2021-22
Domestically, some macroeconomic indicators have deteriorated, as have SBP reserves as a result of debt repayment and political uncertainty.
In monetary policy decision held on 23rd May, 2022 the MPC decided to raise the policy rate by 150 basis points to 13.75 percent. The decision was based on outcome of provisional growth estimates for FY2022 more than target, shows excess aggregate demand, elevated external sector pressure and the higher inflation outlook due to domestic and international factors.
In addition to policy rate increase, the interest rates on EFS and LTFF loans are also being raised. The MPC has informed that in future, these rates will be linked to the policy rate and will adjust automatically, while continuing to remain below the policy rate in order to incentivize exports.
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SBP may raise policy rate by 100bps to 13.25%
KARACHI: The State Bank of Pakistan (SBP) is scheduled to announce monetary policy on May 23, 2022 and may increase the key policy rate by 100 basis points to 13.25 per cent, analysts said on Tuesday.
According to the analysts at Arif Habib Limited, the monetary policy committee of SBP will convene on Monday (May 23rd, 2022) to announce the last scheduled monetary policy of 2021/2022.
READ MORE: SBP increases policy rate sharply by 250bps to 12.25%
They expect the central bank may increase the policy rate by 100 basis points to 13.25 per cent in the upcoming monetary policy statement.
To recall, in an emergency monetary policy meeting held on April 07, 2022, the SBP increased the benchmark policy rate by 250 basis points to 12.25 per cent.
The MPC stated that it believed that since the monetary policy meeting held in March 2022, the outlook for inflation had deteriorated and risks to external stability had risen.
Therefore, these developments necessitated a strong and proactive policy response.
READ MORE: Policy rate may rise as T-Bill yields increase sharply
To recall, headline inflation has remained in the double digits since November 2021 mainly on the back of uptick in food and energy prices.
This phenomenon still continues with headline number hitting almost two years high in April, clocking-in at 13.4 per cent with pressure mainly emanating from higher food and commodity prices.
In April’s MPS, SBP stated that the average inflation forecasts had been revised upwards to slightly above 11 per cent for fiscal year 2021/2022 before moderating in the next fiscal year.
Moreover, in the last policy (April 2022), SBP had termed its action of rate hike as ‘decisive’ and a timely measure to ensure that the goal of financial stability.
READ MORE: State Bank enhances frequency of MP reviews to eight
In addition, the Governor in post MPS (Analyst) Briefing had hinted at a ‘good news’ regarding IMF but conditional upon certain measures pending at government’s end.
The next round of meeting with the IMF starts from May 18th (source: news reports) so they expect government to soon consider rolling back of fiscal relief measures in order to get seventh review through, successfully.
However, this step of government is most likely to further augment inflationary pressure hence, SBP might want to act proactively and consider rate hike in the upcoming policy.
READ MORE: Key policy rate goes up to 9.75%; SBP raises 250bps in less than month
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High interest rate to destroy economy: FPCCI
KARACHI: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) on Saturday said that the recent increase in interest rate will result in disaster for the economy.
Irfan Iqbal Sheikh, President FPCCI, has expressed his profound disappointment and concerns over an unexpected and massive hike in the key policy rate, i.e. 250 bps by the Monetary Policy Committee (MPC) of the State Bank of Pakistan.
READ MORE: KCCI demands immediate withdrawal of policy rate hike
He said that the business, industry and trade community is shocked; and, clueless at the same time on how to cope with its fallout on economic activities, viability of doing business in Pakistan and inevitable adverse impacts on exports – in the absence of any governmental support.
President FPCCI added that a comparative analysis of the interest rates in Pakistan and the regional countries also show a big difference to Pakistan’s disadvantage; namely, Malaysia is at 2 percent China is at 3.7 percent; India is at 4 percent and Bangladesh is at 5 percent. He emphasized that if the interest and export refinancing rates are not decreased drastically in Pakistan, we will not be able to compete with the regional countries as well.
READ MORE: SBP increases policy rate sharply by 250bps to 12.25%
Irfan Iqbal Sheikh explained that the current tide of the inflation had nothing to do with the policy rate of SBP; but, it was due to the political uncertainty and lack of any direction in economic policies due to it.
Additionally, he added, that the inflation in Pakistan has been due to supply-side disruptions and again had nothing to do with the interest rate.
President FPCCI elaborated that it was business community’s genuine demand, even before the recent interest rate raise, that the policy rate should be gradually brought down from 9.75 percent to ensure availability of capital to businesses at lower and affordable rates. Contrary to what was needed, the interest rate has now been hiked to 12.25 percent; which will put a halt to the economic and commercial activities in the country.
READ MORE: KATI terms sudden policy rate hike as economic disaster
Outlining three factors, Irfan Iqbal Sheikh said that volatile rupee-dollar parity, uncertainty in political & economic environment and interest rate hike will totally crush the SMEs; as cost of doing of doing business, ease of doing business, access to capital, access to foreign exchange and remaining profitable will all be next to impossible for SMEs.
Irfan Iqbal Sheikh said if the authorities do not interfere immediately, there will be a lot of bankruptcies, many export orders would not be fulfilled, huge loss of employment opportunities; and loss of tax revenue will follow. He has called upon the authorities to instantaneously start a consultative process with all the stakeholders to find a workable way out of the current crises.
READ MORE: SBP intervention sought to stop further rupee devaluation
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KCCI demands immediate withdrawal of policy rate hike
KARACHI: Karachi Chamber of Commerce and Industry (KCCI) has urged the central bank to immediately withdraw the rise in the key policy rate of 2.5 per cent.
Chairman Businessmen Group (BMG) Zubair Motiwala and President Karachi Chamber of Commerce & Industry (KCCI) Muhammad Idrees, while highly criticizing the State Bank’s move to exorbitantly raise the interest rate by 2.5 percent to 12.5 percent in an emergent meeting, urged Governor SBP to immediately revisit and withdraw this irrational increase as it would prove disastrous for the economy, exports and the industries.
READ MORE: SBP increases policy rate sharply by 250bps to 12.25%
In a joint statement issued, Chairman BMG and President KCCI stated that the entire business & industrial community was in a state of shock to see SBP’s anti-business, anti-economy and anti-exports move which has been taken particularly in a situation when the country’s economy was not so bad. State Bank’s autonomy doesn’t mean that it was free to take such a harsh step overnight which has never happened in 25 years’ history.
It was highly unfair to abruptly and exorbitantly raise the interest rates without bothering to hold consultation with the stakeholders, they said, adding that the Karachi Chamber, from time to time, requested Governor State Bank to visit KCCI so that numerous monetary issues and central bank’s policies affecting businesses could be discussed in detail but, unfortunately, Governor SBP has no time to discuss some of the most pressing issues being suffered by the business community of Karachi.
READ MORE: KATI terms sudden policy rate hike as economic disaster
They noted that last month, Pakistan’s exports recorded an increase of 29.1 percent on Month-on-Month (MoM) basis as compared to last year which clearly indicates that the export sector was performing very well but now, the increase in interest rate would have a deep negative impact on the export performance. It will be completely disastrous for the industries and future investments as nobody would come forward to set up any industry due to exorbitant interest rate and the high cost of doing business which was going to bring the survival of businesses at stake, they cautioned.
Chairman BMG and President KCCI said that the extortionate increase in the interest rate seems like an attempt to completely shut down the industrial and export activities. Is the State Bank intending to completely block the desperately needed foreign exchange being earned through exports and bring Pakistan’s economy at par with the Sri Lankan economy, they asked and advised the SBP to compare Pakistan’s excessive interest rate with the global interest rates which, we fear, would cool down the economic activities.
READ MORE: SBP intervention sought to stop further rupee devaluation
They said that the decision to increase the interest rate has been taken to contain inflation but keeping in view the ground realities and the overall high cost of doing business, the business and industrial community firmly believes that enhanced interest rate would prove counter-productive by further nurturing the inflation.
Chairman BMG said, “As leader of the business community of Karachi, I fervently demand that the decision to raise the interest rate must be revisited which is purely not in the interest of the country hence it has to be taken back while the SBP must also hold consultations with the stakeholders prior to imposing such decision directly affecting the business and industrial activities.”
President KCCI said that the increase in dollar value was due to political turmoil, not because of poor economic performance which has not yet been suffered by impact of rising oil prices hence, the State Bank must refrain from creating more problems for the economy.
READ MORE: Businessmen want early resolution of political uncertainty