He said that further increase in monetary policy by SBP to 9.75 per cent would result in more inflation.
President Salman Aslam said that the government was trying to control inflation by raising interest rates but in the current economic scenario this decision could not prove beneficial.
He suggested that the government should provide facilities and incentives to the export industry to increase the country’s exports and increase foreign exchange reserves, thus reducing the pressure on the rupee against the dollar.
President KATI said tightening monetary policy would freeze the economy, which would hurt the economy. The government-set growth target of 5 per cent is likely to be affected.
Salman Aslam appealed to the government to take strict measures to increase exports instead of tightening monetary policy. If imports are reduced then inflation can be brought down.
He said that the SBP’s move would make loans more expensive and would further increase inflation.
Salman Aslam said that Korangi industrial area has full potential to increase exports, if the government provides facilities then KATI can play its full role in increasing exports.
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.
KARACHI: The State Bank of Pakistan (SBP) on Monday kept the policy rate unchanged at 7 per cent for next two months. The SBP said that at its meeting on July 27, 2021, the Monetary Policy Committee (MPC) decided to maintain the policy rate at 7 percent.
KARACHI: The Monetary Policy Committee (MPC) on Friday decided to keep the key policy rate unchanged at 7 percent owing to improved GDP growth forecast to 3.94 percent and hope of further higher growth in the next fiscal year.
A statement issued by the State Bank of Pakistan (SBP) said that since its last meeting in March, the MPC was encouraged by the further upward revision in the FY21 growth forecast to 3.94 percent.
The MPC noted that this confirms the strength of the broad-based economic rebound underway since the start of the fiscal year, on the back of targeted fiscal measures and aggressive monetary stimulus.
This positive momentum is expected to persist, translating into higher growth next year.
According to the SBP statement, the inflation rose to 11.1 percent (y/y) in April, propped up by the lingering impact of this February’s electricity tariff increase as well asa pick-up in month-on-month food prices, partly driven by the usual seasonality around Ramzan. The MPC noted that supply-shocks to food and energy still dominate, with a small number of energy and food items in the CPI basket accounting for about three-fourths of the rise in inflation since January.
The MPC also observed that although core inflation in urban areas has risen by around 1.5 percentage points during this period, available evidence suggests that demand-side pressures on inflation continue to be relatively contained.
This reflects the fact that despite the economic recovery, there is still some spare capacity following last year’s contraction. Second-round effects from the supply shocks are also not visibly apparent: price pressures are concentrated in a few items, wage growth is subdued keeping a cap on costs, and inflation expectations remain reasonably anchored. As previously forecast, the headline year-on-year inflation rate is likely to remain elevated in the coming months due to the recent electricity tariff hike, pushing the average for FY21 close to the upper end of the announced range of 7-9 percent. As supply shocks dissipate thereafter, inflation is expected to gradually fall toward the 5-7 percent target range over the medium-term.
In light of the foregoing considerations, the MPC was of the view that the current significantly accommodative stance of monetary policy remains appropriate to ensure the recovery becomes firmly entrenched and self-sustaining. This is especially so given the renewed heightened uncertainty created by the on-going third wave of Covid in Pakistan and the fiscal consolidation expected this fiscal year. As a result, the MPC noted that it was important for monetary policy to remain supportive. The MPC observed that given the Covid-related uncertainties, the cost of withdrawing monetary stimulus too soon exceeded that of withdrawing too late.
Looking ahead, in the absence of unforeseen circumstances, the MPC expects monetary policy to remain accommodative in the near term, and any adjustments in the policy rate to be measured and gradual to achieve mildly positive real interest rates over time. If demand side pressures emerge as the recovery becomes more durable and the economy returns to full capacity, the MPC noted that it would be prudent for monetary policy to begin to normalize through a gradual reduction in the degree of accommodation. This would help ensure that inflation does not become entrenched at a high level and financial conditions remain orderly, thereby supporting sustainable growth.
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.
KARACHI: The State Bank of Pakistan (SBP) on Tuesday said it will issue monetary policy statement on Friday March 19, 2021. A poll suggested that the central bank likely to keep policy rate unchanged at 7 percent.
However, some participants polled the policy rate might be increased by 25 basis points to 50 basis points in the upcoming monetary policy meeting.
The Topline Securities conducted the poll of key financial market participants over their views on the upcoming Monetary Policy Statement (MPS) of Mar 19, 2021.
A total of 118 participants took part in the latest poll, compared to 94 in Jan-2021 poll which was conducted for Jan-2021 MPS.
Of the 118 participants, 82 percent expect no change in the Policy Rate in the Mar 19, 2021 MPS. In previous poll, 75 percent of the participants were expecting no change.
In total, 18 percent of the participants are expecting increase in Policy Rate. Around 11 percent are expecting increase of 25 basis points and 4 percent are expecting hike of 50 basis points.
In last the poll, 19 percent of the participants were expecting an increase in Policy Rate.
Regarding cumulative hike in 2021, 65 percent respondents have voted for rate hike between 25-100 basis points. Similarly, 24 percent people expect rate hike in range of 125-200 basis points.
Surprisingly, 8.5 percent of the participants yet expect no change in policy rate during 2021.
We are also expecting no change in the Policy Rate in the March 2021 MPS, while we expect increase in Policy Rate by 100 basis points in 2021.
On inflation front, 70 percent participants believe that during 2021 inflation will average between 8-10 percent, while 16 percent believe inflation will average lower than 8 percent. Rest of the participants believe, inflation will clock in above 10 percent during 2021.
We believe change in views towards increase in Policy Rate going forward is owing to (1) likely restoration of IMF program over next couple of weeks wherein energy tariffs are likely to be adjusted upwards and (2) rising international oil and commodity prices (sugar, scrap, palm oil etc.)
KARACHI: The State Bank of Pakistan (SBP) on Thursday announced to further cut policy rate by 100 basis points to 7 percent in order to support domestic economic activities.
A statement issued by the SBP stated that at its meeting on June 25, 2020, the Monetary Policy Committee (MPC) decided to reduce the policy rate by 100 basis points to 7 percent. This decision reflected the MPC’s view that the inflation outlook has improved further, while the domestic economic slowdown continues and downside risks to growth have increased.
Against this backdrop of receding demand-side inflation risks, the priority of monetary policy has appropriately shifted toward supporting growth and employment during these challenging times.
Consistent with its mandate, the MPC re-asserted its commitment to supporting households and businesses through the Covid-19 crisis and minimizing damage to the economy. In this context, the MPC felt that from a risk management point of view, a prompt response to downside risks to growth was called for given the improved inflation outlook. In addition, the MPC noted that with approximately Rs. 3.3 trillion worth of loans due to be repriced by early July 2020, this was an opportune moment to take action from a monetary policy transmission perspective.
In this way, the benefits of interest rate reductions would be passed on in a timely manner to households and businesses.
The MPC noted that the Covid-19 pandemic is spreading in many emerging markets, including Pakistan, and there are fears of a second wave in several other countries.
The MPC observed that risks to the global outlook are heavily skewed to the downside and the path of recovery remains uncertain.
The MPC also noted that in its update of the World Economic Outlook (WEO) released yesterday, the IMF downgraded its 2020 global growth forecast further to -4.9 percent, 1.9 percentage points lower than in April, and projected a more gradual recovery than previously anticipated.
Domestically, the moderation of underlying inflation has continued. Notwithstanding a seasonal uptick in food prices associated with the Eid holiday, headline inflation declined further to 8.2 percent in May on the back of the recent cut in diesel and petrol prices. In addition, month-on-month inflation rates continue to be low.
Recent SPI data also suggests continued moderation in overall price pressures in June, despite price increases in some food items, notably wheat.
The FY2020/21 budget is also expected to be neutral for inflation as the freeze on government salaries, absence of new taxes, and lower production cost from reduced import duties should offset the decline in subsidies in some sectors. While supply shocks could create some volatility in inflation, the MPC felt that these are likely to be transitory given weak domestic demand, such that monetary policy should generally look past them.
Given the absence of demand-side pressures, average inflation could fall below the previously announced range of 7-9 percent for next fiscal year.
With the current reduction of the policy rate to 7 percent, the MPC felt that real rates on a forward-looking basis (defined as the policy rate less expected inflation) would be kept close to zero, which is appropriate under the current circumstances.
On the real side, the decline in LSM deepened to 41.9 percent (y/y) in April, when lockdowns were still in place. In May, high-frequency indicators of activity such as cement dispatches, automobile sales, food and textile exports, and POL sales also continued to contract, although mostly at a lower rate than in the previous two months. Looking ahead, the economy is expected to recover gradually in FY21, supported by easing lockdowns, supportive macroeconomic policies and a pick-up in global growth. However, risks are skewed to the downside and the recovery will depend critically on the evolution of the pandemic both in Pakistan and abroad.
On the external front, the current account swung into surplus in May on the back of a reduction in the trade deficit and a pick-up in remittances compared to the previous month. Meanwhile, portfolio outflows slowed considerably compared to the previous two months and FDI has been resilient, nearly doubling to $2.4 billion so far in FY20 compared to the same period last year. SBP reserves declined to US$ 9.96 billion as of 19th June 2020 largely due to debt repayments.
However, since then, SBP has received fresh disbursements from multilateral agencies including around $725 million from World Bank and $500 million from ADB, and another $500 million is expected shortly from the Asian Infrastructure Investment Bank (AIIB).
During this period of external volatility, the MPC observed that the flexible exchange rate has played its valuable shock absorber role, helping cushion the economy from the tightening of financial conditions associated with capital outflows from emerging markets and deteriorating global sentiment.
The MPC noted that the depreciation in the rupee has been lower than in many other emerging markets, reflecting the increased reserve buffers accumulated over the last year. The outlook for the external sector remains stable. Recent data confirms the view that the current account deficit should remain bounded through the Covid-19 crisis due to lower oil prices. In addition, projected official and private inflows are expected to keep the external position fully funded.
Today’s decision brings the cumulative reduction in the policy rate since mid-March to 625 basis points, commensurate with the decline in inflation during this period.
The MPC noted that the take-up of several other SBP initiatives has risen significantly in recent weeks, notably concessional refinancing facilities to protect employment and support the health sector as well as regulatory measures to provide debt servicing relief.
Together, this strong and data-driven monetary policy response should support growth and employment, while keeping inflation expectations anchored and maintaining financial stability.
KARACHI: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) on Friday said that the decision to lower interest rate by one percent will not help the country to boost especially considering adverse impact of coronavirus.
FPCCI president Mian Anjum Nisar while responding to rate cut by State Bank of Pakistan (SBP) and said that despite clear message by all segments of economy particularly trade and industry the SBP reduction of one percent policy rate is surprising and unfavorable to bleeding economy.
He said that given the current deteriorating economic situation all the Central Banks are supporting by significant reduction in interest rate along with stimulus packages while current decision not based on forward-looking inflation.
He further stated that the FPCCI deplores the regulator’s conservative stance where the speed and the magnitude of the response do not match the havoc caused by the virus.
FPCCI completely agrees with the external account situation detailed in their monetary policy statement where current account deficit (CAD) will remain in control as was the case in April.
He said that May and June imports will be even lower than 3 billion per month on account of fewer orders placed by importers due to depressed demand under lockdown.
Nisar further said since the external situation is in manageable as per SBP, there is sufficient information available on the inflation front to forecast a much lower rate than 7-9 percent forecasted for next year by SBP.
Importantly, SBP in their 17th March, 2020 MPC press release stated: “Average headline inflation is expected to remain within the SBP’s 11-12 percent forecast in FY20, before falling to the medium-term target range of 5-7 somewhat earlier than previously forecast.”
FPCCI based on its own research tends to agree with SBP’s earlier assessment of 5 percent anticipated inflation. We would have understood a cautious approach if the situation was normal but in these unprecedented times, we urge the regulator to appreciate the gravity of the situation where most businesses are expected to accrue markup when their sales are ZERO.
The need of the hour is to take a more aggressive approach to policy making where what can be done tomorrow should be done today.
FPCCI acknowledges the regulator’s approach on refining their decisions and policies based on constructive feedback as has been demonstrated in multiple improved iteration of various refinance schemes. In the same spirit, we stand ready to work closely with the regulator in our quest to bring down the rate to 5% in the shortest possible time.
Mian Anjum Nisar President FPCCI urged the SBP to shift its pre-COVID-19 mindset and adopt the policies according to the sentiment of the Prime Minister Imran Khan and Businesses community to bring out economy from crises.
KARACHI: Karachi Chamber of Commerce and Industry (KCCI) on Wednesday demanded the central bank to reduce policy rate to 4 percent instead easing in bits and pieces.
KCCI President Agha Shahab Ahmed Khan in a statement urged the State Bank of Pakistan (SBP) to bring down the policy rate from 9.0 percent to 4.0 percent in view of the extra-ordinary circumstances and a global scale economic crisis, which is certain to have a long term negative impact on Pakistan’s economy.
In a letter sent to Governor SBP Dr. Reza Baqir, President KCCI stressed that reduction in policy rate in bits and pieces is not enough to provide the much needed stimulus to the economy hence, it is necessary to significantly reduce the interest rate in a single step, to help the businesses sail through the unprecedented crisis.
He was of the opinion that there is now ample justification for reduction in policy rate because the inflation rate has declined sharply due to a steep fall in prices of crude oil, commodities and raw materials, while the demand has also been suppressed.
President KCCI appreciated the measures taken by SBP to support the industry and exporters to meet the challenges and financial crunch faced by them due to prolonged lockdowns to prevent the spread of Covid-19 coronavirus.
While acknowledging the interest rates of 4 percent and 5 percent for filers and non-filers respectively in the package, he suggested that in view of the special circumstances, the rate of interest should be zero to support the economy and sustain the industries at least for the next one year.
He however stressed that there is a dire need to announce a Rescue Package for Micro level Enterprises and SMEs which contribute around 40 percent to GDP.
He pointed out that unfortunately, no relief has so far been announced for Micro enterprises and SMEs, which are under much greater financial stress then the large scale businesses and their survival is at stake.
KARACHI: The State Bank of Pakistan (SBP) on Tuesday announced reduction of 150 basis points in key policy rate to bring it at 11 percent. The central bank cut the policy rate second time in last seven days considering massive deterioration in the economy due to large scale spread of coronaviruse.
ISLAMABAD: State Bank of Pakistan (SBP) enhanced policy rate by 650 basis points during last 18 months (January 2018 to date) for macroeconomic stabilization.
According to Economic Survey 2018/2019 issued by the ministry of finance on Monday said the SBP had adopted policy rate reversal and gradually increased it by a cumulative 650 bps since January, 2018.
“Despite increase in policy rate, Weighted Average Lending Rate (WALR) remained stable which translated into healthy private sector credit demand.”
Credit to private sector (CPS) increased to Rs 775.5 billion during FY2018 against Rs 747.9 billion last year. Significant increase in credit demand primarily came from working capital and fixed investment in the preceding year.
During the period July-March, FY2019 CPS increased to Rs 554.7 billion compared with Rs 401.1 billion during same period of last year.
Of which working capital loans received the major share and stood at Rs 369.0 billion compared to Rs 215.3 billion last year. While fixed investment decelerated to Rs 83.1 billion against Rs 148.1 billion in the comparable period last year.
The survey said that the monetary policy is an important tool to achieve price stability and manage economic fluctuations.
Inflation targeting has emerged as the leading framework for monetary policy over recent decades in many advanced and in low income economies.
Monetary policy role after global financial crises has extended as macro prudential policy which required strong institutional framework for financial stability and to achieve twin objectives of price and output stabilization.
Pakistan’s economy witnessed a consumption led growth of 5.53 percent during preceding year FY2018.
The incumbent government has inherited the economy facing multiple challenges including unsustainable twin deficits that pose serious risks to the economy.
Hence, to correct the imbalances in the economy, authorities have taken steps to curtail the fiscal deficits and tighten monetary policy to contain demand.
SBP has significantly tightened monetary policy, and allowed greater flexibility in the exchange rate adjustments to curb excessive aggregate demand and move towards macroeconomic stabilization.
This trend is in line with the global trends. The global economic expansion has weakened and projected to slow down from 3.6 percent in 2018 to 3.3 in 2019, before returning to 3.6 percent in 2020.
Following a notable tightening of global financial conditions during second half of 2018, conditions have eased in early 2019 as the US Federal Reserve signaled a more accommodative monetary policy stance and markets became more optimistic about a US–China trade deal.
The US federal funds rate is expected to increase to about 2.75 percent by the end of 2019. Policy rates are assumed to remain at close to zero in Japan through 2020 and negative in the Euro area until mid-2020.
