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Key takeaways from SBP’s off-cycle MPC meeting

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2 years ago

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In an off-cycle review, the State Bank of Pakistan (SBP) raised its key interest rate by 300 basis points on Thursday, exceeding investor expectations, as the cash-strapped country seeks to encourage the International Monetary Fund (IMF) to release critical financing.

The key rate of the SBP now stands at 20%, its highest level since October 1996, with consumer price inflation now at its highest level for almost 50 years.

The Monetary Policy Committee’s (MPC) next meeting is set to be held on April 4.

Arif Habib Limited compiled key takeaways from the meeting’s outcome, here they are:

– National CPI has swelled up to 31.5% YoY during February 2023, with core inflation at 17.1% in urban and 21.5% in the rural basket.

– The near-term inflation outlook has deteriorated post external and fiscal adjustments undertaken recently.

– The MPC has raised its CPI forecast for the year to 27-29% against the November 2022 forecast of 21-23%.

– Inflation in upcoming months can drift higher, albeit, at a gradual pace, as the impact of said adjustments unfolds.

– The committee noted that external account challenges persist despite the significant contraction in the current account deficit, recorded at $242 million in January 2023 (lowest since March 2021).

– Pressure on forex reserves and rupee-dollar parity also remain in place, regardless of a 67% decline in current account deficit in the Jul-Jan 2023 period given ongoing debt repayments, and lower financial inflows amid “rising global interest rates and domestic uncertainties.”

– The conclusion of the ninth review of the IMF’s EFF remains crucial to address external-sector vulnerabilities.

– Additionally, the MPC urged the implementation of energy conservation measures to alleviate pressure on the external account and to meet vital imports from other sectors.

– Fiscal consolidation remains critical for economic stability and recent measures like increase in GST and excise duties, restricted subsidies, and adjustment in energy prices should help contain the widening fiscal and primary deficits.

– This will complement the ongoing monetary tightening and help bring down inflation over the medium term.

– The committee also assessed the impact of further monetary tightening on the country’s financial stability and near-term growth.

– It was observed that “risks to financial stability remain contained, given that financial institutions are broadly well capitalized.”

– However, growth will be compromised as a trade-off.

– However, the MPC reiterated that the long-term costs of letting inflation become entrenched outweigh the immediate costs of bringing it down.

– Barring any future shocks, the committee believes that today’s decision has pushed the real interest rate into positive territory on a forward-looking basis.

– The medium-term CPI target remains unchanged at 5-7%, by end-FY25. 

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Business

With the PSX at 115,000, investors profit while the sun is shining.

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5 hours ago

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Despite the numerous actions the government has taken in recent months, the nation’s economy is still growing.

The extraordinary rise in equities in recent years is evidence that the economic “turnaround” has given investors cause for optimism.

As market participants eagerly made investments, the KSE-100 index crossed the 115,000 level on Friday, the penultimate working day of the current week on the Pakistan Stock Exchange (PSX). The stocks gained strength on the 13th consecutive day, highlighting improvement in the country’s economy.

During early hours of trading, stocks climbed to 115,172 with a gain of 600 points.

The Pakistan Stock Exchange (PSX) reached its peak by surging above 114,000 points on Thursday. It has been over a month since the surge began.

The figure jumped by a substantial 2,500 points to 113,374 points during Thursday’s session. The KSE-100 index closed at 114,180, up 3,370 points, after surpassing 114,000 points later in the day.

On Wednesday, stocks closed at 111,810.

FLOW AND EBB

The market had a sharp bearish rise a few days ago, but it was short-lived as bullish momentum returned. The benchmark KSE-100 index gained more than 2,000 points and is currently sitting around 111,000. It was in opposition to the close of 108,896 points the day before.

CUT THE rating ON THE CARDS

The proverbial bulls have been galloping for the past month or so thanks to the financial infusion from the International Monetary Fund’s loan disbursement and more discussions on climate funding.

The impending policy rate cut meeting of the SBP is another factor contributing to the current market attitude. The Monetary Policy Committee of the Central Bank is scheduled to convene on Monday, December 16.

On November 30, the Pakistan Stock Exchange (PSX) achieved a historic milestone by reaching a record-breaking high of 100,000 points following an unheard-of run of gains.

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ADB Adjusts Pakistan’s Economic Growth Forecast to 3% for 2024-25, Indicating Positive Economic Trajectory

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1 day ago

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Pakistan’s economic growth is projected to be three percent in the fiscal year 2025, according to the Asian Development Bank’s revised prediction, which is an upward revision from the previous forecast.

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The PSX 100 index crosses 113,000 points, marking a historic milestone.

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1 day ago

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The historic 113,213-point milestone has been surpassed for the first time by the Pakistan Stock Exchange (PSX), setting a new record.

The stock market experienced a spectacular start to the trading session, rising 1,400 points in just 30 minutes. At an all-time high of 112,277 points, the KSE-100 Index jumped 1,467 points.

With the index rising 1,200 points in just 15 minutes after the market began, the PSX had already reached another milestone. At 112,041 points, the KSE-100 Index had risen 1,231 points.

In another example of record-breaking performance, the PSX saw a 1,000-point spike in just 10 minutes. The KSE-100 Index rose 1,100 points to 111,911 points, regaining the 111,000-point milestone and hitting its highest level ever.

The PSX’s exceptional performance establishes it as a crucial gauge of economic optimism by highlighting robust investor confidence and substantial market momentum.

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