- SBP has cumulatively increased the rate by 800 basis points since Sept 2021 to control inflation.
- MPC to meet next on August 22; will carefully monitor developments affecting prospects for inflation.
- Central bank expects rate hike to help prevent de-anchoring of inflation expectations, provide support to rupee.
KARACHI: In line with the market expectation, the State Bank of Pakistan (SBP) on Thursday aggressively raised the benchmark interest rate by a massive 125 basis points to 15% — the highest since November 2008.
The rate hike came as the coalition government is trying hard to revive the much-awaited International Monetary Fund (IMF) for the resumption of a $6-billion loan programme that had been stalled since early April.
The central bank has cumulatively increased the rate by 800 basis points since September 2021 to control inflation and narrow the current account deficit.
During today’s meeting, under the chair of Acting Governor Dr Murtaza Syed, it was decided that the interest rates on export finance scheme (EFS) and long-term financing facility (LTFF) loans are now being linked to the policy rate to strengthen monetary policy transmission while continuing to incentivise exports by presently offering a discount of 500 basis points relative to the policy rate.
According to a statement issued by the central bank, this combined action continues the monetary tightening underway since last September, “which is aimed at ensuring a soft landing of the economy amid an exceptionally challenging and uncertain global environment.”
“It should help cool economic activity, prevent a de-anchoring of inflation expectations and provide support to the rupee in the wake of multi-year high inflation and record imports,” the statement read.
Three major developments since May
The central bank noted that since the last meeting, the Monetary Policy Committee noted “three encouraging developments”.
- The unsustainable energy subsidy package was reversed and an FY23 budget centered on strong fiscal consolidation was passed which has paved the way for completion of the on-going review of IMF programme
- A $2.3 billion commercial loan from China helped provide support to foreign exchange reserves, which had been falling since January due to current account pressures, external debt repayments and paucity of fresh foreign inflows
- Economic activity remained robust, with the momentum of the last two years of near 6% growth carrying into the start of FY23.
However, the MPC noted that several adverse developments overshadowed this aforementioned positive news.
It stated that globally, inflation is at multi-decade highs in most countries and central banks are responding aggressively, leading to depreciation pressure on most emerging market currencies. While domestically, as energy subsidies were reversed, both headline and core inflation increased significantly in June, rising to a 14-year high.
‘Pakistan facing large negative income shock’
“Against this challenging backdrop, the MPC noted the importance of strong, timely and credible policy actions to moderate domestic demand, prevent a compounding of inflationary pressures and reduce risks to external stability,” the statement read.
The MPC members stated that like most of the world, “Pakistan is facing a large negative income shock from high inflation and necessary but difficult increases in utility prices and taxes.”
The central bank believes that without decisive macroeconomic adjustments, there is a significant risk of substantially worse outcomes that would compromise price stability, financial stability and growth.
Hinting at further monetary policy tightening in the next meeting scheduled to be held on August 22, the MPC noted that the runaway inflation and foreign exchange reserves depletion would require sudden and aggressive tightening actions later that would be significant “more disruptive for economic activity and employment.”
“Adjustment is difficult but necessary in Pakistan, as it is all over the world. However, in the interest of social stability, the burden of this adjustment must be shared equitably across the population, by ensuring that the relatively well-off absorb most of the increase in utility prices and taxes while well-targeted and adequate assistance is provided to the more vulnerable,” it stated.
“The MPC will continue to carefully monitor developments affecting medium-term prospects for inflation, financial stability, and growth and will take appropriate action to safeguard them,” the central bank said.
PKR on track to become top-performing currency this month: Bloomberg
- Pakistani currency rose around 6% this month against dollar.
- Authorities curb leakages happening through illegal channels.
- Crackdown on illegal dollar traders helps local currency.
The Pakistani rupee is on track to become the top performer globally in September as the caretaker government continues its crackdown on illegal dollar trade, Bloomberg reported Thursday.
The local currency rose around 6% this month against the dollar — an amazing feat despite the Thai baht and South Korean won tumbling against the greenback.
Major currencies lost ground against the dollar on speculations that the US interest rates will stay elevated for longer.
The rupee increased 0.1% to 287.95 per dollar on Thursday, after sliding to a record low of about 307 this month. Pakistan’s currency market will remain closed for the Eid Miladun Nabi holiday on Friday.
“Many leakages were happening through illegal channels of hawala and hundi trade from the open market,” Khurram Schehzad, chief executive officer of Alpha Beta Core Solutions Pvt Ltd, told Bloomberg.
“When the dollar rate reverses everybody, the hoarders, the exporters who are holding their export proceeds, start selling their dollars,” Schehzad said.
The interim rulers have intensified efforts by launching a crackdown on people involved in the illegal dollar trade, allowing the currency to gain some lost ground.
The Federal Investigation Agency, Bloomberg reported, conducted raids across the country and security officials in plainclothes were deployed at money exchanges to monitor dollar sales as part of the crackdown.
Caretaker Prime Minister Anwaar-ul-Haq Kakar this week said the rupee’s gain is “fostering optimism for stability.”
For its part, the State Bank of Pakistan raised the capital requirements of smaller exchange companies and ordered large banks to open their own exchange companies to make the retail foreign exchange market more transparent and easier to monitor.
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inDrive now available in five more Pakistani cities
KARACHI: inDrive, a popular ride-hailing service in Pakistan, has now expanded its network to five more cities across Pakistan including Larkana, Kāmoke, Sheikhupura, Hafizabad, and Okara.
In a statement issued by the transport company, the inclusion of these cities reflects inDrive’s dedication to bringing innovative transportation options to both urban centres and suburban areas.
Speaking about the expansion, Senior Business Representative at inDrive Hasan Qureshi said: “We are excited to extend the convenience and reliability of inDrive to residents of Larkana, Kāmoke, Sheikhupura, Hafizabad, and Okara.”
“Our mission is to redefine transportation by providing safe, affordable, and accessible rides to everyone. With this expansion, we are not only enhancing the commuting experience but also contributing to the economic growth and empowerment of these communities.”
PR Manager Sidra Kiran said that their new service offers city residents the convenience of accessing transport from their homes, eliminating the need to search for it.
“Both drivers and passengers stand to gain significant benefits, including time-saving and the elimination of challenges associated with street hailing. This service addresses issues such as locating rides during odd hours like early mornings or late nights,” she stated.
She further added: “inDrive ride-hailing presents numerous benefits to drivers in small cities, including flexible opportunities, reduced unemployment, supplemental income, enhanced community connection, and positive contributions to the local economy.”
The launch of the company in these cities would benefit both riders and driver-partners.
inDrive further said that it remains committed to upholding the highest standards of safety, affordability, customer service, and technological innovation.
inDrive is Pakistan’s premier ride-hailing service and is revolutionising the way people travel. With a commitment to providing safe, affordable, and reliable transportation.
The company allowed riders to connect with nearby drivers with its app.
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