Business

Monetary policy: SBP hikes interest rate to 16% to curtail inflation

Published

1 year ago

Farwa

“Decision aims to ensure elevated inflation does not become entrenched,” SBP says.
SBP increased rate cumulatively by 900 basis points since Sept 2021 to Nov 2022.
MPC says it will continue to carefully monitor developments affecting prospects for inflation, growth.

KARACHI: The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) Friday raised the key policy rate by 100 basis points to 16% — the highest since 1999.

The central bank, in a statement, issued after the meeting said that the decision reflects the MPC’s view that inflationary pressures have proven to be stronger and more persistent than expected.

1/3 At today’s meeting, the Monetary Policy Committee (MPC) decided to raise the policy rate by 100 basis points to 16%. https://t.co/E4scWh3Eeo
— SBP (@StateBank_Pak) November 25, 2022

“This decision is aimed at ensuring that elevated inflation does not become entrenched and that risks to financial stability are contained, thus paving the way for higher growth on a more sustainable basis,” the MPC said.

The SBP noted that amid the ongoing economic slowdown, inflation is increasingly being driven by persistent global and domestic supply shocks that are raising costs.

“In turn, these shocks are spilling over into broader prices and wages, which could de-anchor inflation expectations and undermine medium-term growth,” the statement read, adding that consequently the rise in cost-push inflation cannot be overlooked and necessitates a monetary policy response.

The MPC further noted that the short-term costs of bringing inflation down are lower than the long-term costs of allowing it to become entrenched. Meanwhile, curbing food inflation through administrative measures to resolve supply-chain bottlenecks and any necessary imports remains a high priority.

The central bank increased the rate by a cumulative 900 basis points in 15 months (September 2021 to November 2022) to 16%.

The MPC, Since the last meeting, noted three key domestic developments, including:

Headline inflation increased sharply in October, food prices also accelerated significantly, and core inflation has risen further
A sharp decline in imports led to a significant moderation in the current account deficit in both September and October
After incorporating Post-Disaster Needs Assessment of floods, the FY23 projections for growth of around 2% and current account deficit of around 3% of GDP are re-affirmed.

However, the committee mentioned that higher food prices and core inflation are now expected to push average FY23 inflation up to 21-23%.

3/3 After incorporating the Post-Disaster Needs Assessment of the floods and latest developments, the FY23 projections for growth of around 2% and a current account deficit of around 3% of GDP shared in the last monetary policy statement are re-affirmed.
— SBP (@StateBank_Pak) November 25, 2022

Key projections for FY23

Growth rate in FY23 to clock in at 2%
Current account deficit to remain around 3% of GDP shared
Average FY23 inflation to be calculated around to 21-23%
Forex reserves expected to improve gradually
Inflation expected to fall toward upper range of the 5-7%

External sector

The MPC mentioned that on the financing side, inflows are being negatively affected by domestic uncertainty and tightening global financial conditions as major central banks continue to raise policy rates.

The financial account recorded a net inflow of $1.9 billion during the first four months of FY23, compared to $5.7 billion during the same period last year.

“Looking ahead, higher imports of cotton and lower exports of rice and textiles in the aftermath of the floods should be broadly offset by a continued moderation in overall imports due to the economic slowdown and softer global commodity prices,” it said.

The committee predicted the current account deficit is expected to remain moderate in FY23, with foreign exchange reserves gradually improving as anticipated external inflows from bilateral and multilateral sources materialise.

The central bank said that if the recent decline in global oil prices intensifies or the pace of rate hikes by major central banks slows, pressures on the external account could diminish further.

Monetary and inflation outlook

As part of its forward guidance, the MPC said that it will continue to carefully monitor developments affecting medium-term prospects for inflation, financial stability, and growth.

The central bank noted that headline inflation rose by almost 3½ percentage points in October to 26.6% year-on-year, driven by normalization of fuel cost adjustments in electricity tariffs and rising prices of food items.

Energy and food prices rose by 35.2 and 35.7% year-on-year, respectively. Meanwhile, core inflation increased further to 18.2 and 14.9% year-on-year in rural and urban areas respectively, as rising food and energy inflation seeped into broader prices, wages and inflation expectations.

“As a result of these developments, inflation projections for FY23 have been revised upwards. While inflation is likely to be more persistent than previously anticipated, it is still expected to fall toward the upper range of the 5-7% medium-term target by the end of FY24, supported by prudent macroeconomic policies, orderly Rupee movement, normalising global commodity prices and beneficial base effects,” the statement read.

Moreover, it was noted that in line with the slowdown in economic activity, private sector credit continued to moderate, increasing only by Rs86.2 billion during the first quarter of the fiscal year 2022-23 compared to Rs226.4 billion during the same period last year.

The central bank attributed this deceleration to a significant decline in working capital loans to wholesale and retail trade services as well as to the textile sector in the wake of lower domestic cotton output, and a slowdown in consumer finance.

Business

IMF board to meet on Jan 11 for Pakistan’s first review approval

Published

1 day ago

Farwa

Pakistan’s case not included in board meeting agenda for Dec 1-15.
Ongoing SBA programme is going to expire on April 14, 2024.
Pakistan, IMF reached agreement on first review last month.

The International Monetary Fund’s Executive Board will take up Pakistan’s first review on January 11 next year for approval that will unlock $700 million under the standby arrangement (SBA), Bloomberg quoted the lender’s spokesperson as saying on Friday.

Last month, Pakistan reached a staff-level agreement with the IMF under the $3 billion SBA and is awaiting the board’s approval to receive a second tranche.

Earlier this week, The News had reported that Pakistan’s first review for approval was not included in the IMF’s Executive Board meeting agenda for the 1-15 December schedule

The publication reported that the IMF did not firm up its exact schedule because the Fund’s team was busy securing re-confirmation from all multilateral and bilateral creditors to meet the financing requirements of $24.9 billion for the current fiscal year.

This delay surfaced in discussions among the policymakers that the IMF might kick-start parleys on the second review probably after the general elections and takeover by the elected government.

The IMF programme was initially scheduled to kick-start parleys for a second review from Feb 3, 2024, but if the elections were scheduled to be held on February 8, 2024, then the possibility of holding talks might be done in the last week of Feb or early March 2024.

The ongoing SBA programme is going to expire on April 14, 2024.

A day earlier, IMF Executive Director Bahador Bijani noted an overall improvement in the economic situation, saying, the “Pakistani authorities have delivered”.

He made these remarks at an event hosted by Pakistan’s ambassador to the US in honour of friends of Pakistan from International Financial Institutions including IMF, International Finance Corporation (IFC), World Bank (WB), and Multilateral Investment Guarantee Agency (MIGA), at Pakistan House in Washington.

“I think the future for Pakistan is very bright. Pakistan is not just any country. It’s one of the most important countries in the region and in the world. Pakistanis deserve much more,” the IMF executive director was quoted as saying in an official statement.

Nathan Porter, IMF Mission Chief to Pakistan, also expressed satisfaction over the recently concluded staff-level agreement. He said that the actions and policies of the current government reflected its commitment to steer the country towards stabilisation.

Pakistan is reeling from Asia’s fastest inflation, has about $1 billion in dollar-denominated debt due next year and is scheduled to hold elections scheduled in February.

Interim Finance Minister Shamshad Akhtar said after the staff-level deal in November that the country may seek an additional loan from the IMF, describing the economy as “still fragile.”

Business

PSX hits new milestone as KSE-100 surges past 66,000 mark

Published

1 day ago

Farwa

KARACHI: Bulls maintained their grip on the Pakistan Stock Exchange (PSX) as the benchmark index shot past the 66,000 mark on Friday by gaining over 1,000 points.

According to the PSX website, the KSE-100 index gained 1,302.45 points or 2.01% to reach 66,020.52 points at 11:39am during the intraday trading.

Raza Jafri, who is the head of equities at Karachi-based Intermarket Securities, said that the banks and energy sector lead the rally at the bourse as cheap valuations and a reasonably settled environment help flows remain strong as foreign and local buys continue to invest.

“The MPC (Monetary Policy Meeting) next week should set the tone for near-term trading. While unchanged interest rates are widely expected, investors will look for clues in the text of the monetary policy statement to gauge how much interest rates can come down by next year,” he added.

Business

Pakistani authorities have ‘delivered’ on economic front, says top IMF official

Published

2 days ago

Farwa

IMF official says Pakistan ‘important’ country in the world.
“Our country is destined to succeed,” says Masood Khan.
Nathan Porter hails actions and policies of Pakistani govt.

WASHINGTON: Bahador Bijani, an Executive Director of the International Monetary Fund (IMF), has noted an overall improvement in the economic situation, saying, the “Pakistani authorities have delivered”.

The meeting took place as Islamabad awaits the IMF board’s meeting to approve a staff-level agreement on the first review of a $3 billion bailout, which will unlock $700 million in funding for the country.

Addressing the event, Ambassador Masood Khan observed that the past year was difficult for Pakistan. “We have passed through a wrenching transition and we are moving toward a new phase of stability,” he added.

“Have faith in Pakistan. Our country is destined to succeed,” he said.

Hosted friends of 🇵🇰 from International Financial Institutions – IMF @imf_pakistan , World Bank @WorldBank, IFC @IFC_org, Multilateral Investment Guarantee Agency @MIGA – to thank them for their steadfast support during the past year. We’ll continue to count on their partnership. pic.twitter.com/AuKbBDvG3s
— Masood Khan (@Masood__Khan) December 6, 2023

“Our confidence stems from the people of Pakistan. We have a growing middle class and our human capital is increasing at a very fast pace,” he added.

Addressing a gathering of over 40 guests from the IFIs, the ambassador said that we were grateful to IFIs for their steadfast support in navigating through a difficult economic period.

Nathan Porter, IMF Mission Chief to Pakistan, speaking on the occasion, expressed satisfaction over the recently concluded staff-level agreement. He said that the actions and policies of the current government reflected its commitment to steer the country towards stabilisation.

“With that base, hopefully, we can build on and be able to move forward to reforms to build a stronger, prosperous and inclusive Pakistan,” he said.

He also appreciated the cooperation and the policies pursued by the State Bank of Pakistan for ensuring fiscal stability in the country.

Athanasios Arvanitis, Deputy Director Middle East and Central Asia Department IMF, also spoke on the occasion and expressed the hope that the elections in Pakistan would usher into a new beginning of undertaking a reform process that the country needed to make progress and address some of its structural issues.

Thanking them for their strong support, Ambassador Khan observed that the digitisation of Pakistan’s economy was creating new opportunities in the country for its youth and professionals taking the lead role in steering the country towards a bright future.

Lauding the professional achievements of Pakistanis working in the IFIs, the ambassador observed that Pakistani professionals have proved their mettle and have made the entire nation proud of their accomplishments.

“We are a nation of talented people. If you can make it, Pakistan will also make it,” observed the ambassador.

Syed Ali Abbas, Advisor Mission Chief UK, European Department IMF, in his remarks, expressed the hope that with the successful completion of the electoral process in Pakistan, the country would move towards a long-term and more durable approach which would change the trajectory of Pakistan.

Aftab Qureshi from the World Bank and Sidra Rehman from the IMF also spoke on the occasion and assured their continued cooperation.

The ambassador thanked the members of the IFIs and said that the country looked forward to working with its development partners.