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Monetary policy: SBP holds interest rate at 22%

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10 months ago

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In line with market expectations, MCP leaves benchmark interest rate unchanged for the next one and half month.

  • MPC’s decision is in line with market expectations.
  • Interest rate unchanged for next one-and-half month.
  • MPC says inflation rose in September 2023 as expected.

The State Bank of Pakistan (SBP) Monday decided to hold the key policy rate at 22%, in line with the market expectations, with the next announcement on December 12.

In a statement, the central bank said: “At its meeting today, the Monetary Policy Committee (MPC) decided to maintain the policy rate at 22 percent.”

The committee noted that headline inflation rose in September 2023 (31.4%) as expected — a major factor in determining the key policy rate.

However, the SBP said, it is projected to decline in October and then maintain a downward trajectory, especially in the second half of the fiscal year.

The MPC expects inflation to decline significantly in October due to downward adjustments in fuel prices, easing prices of some major food commodities, and a favorable base effect. 

“The Committee also reaffirmed its earlier assessment that inflation will decline substantially from the second half of FY24, barring any major adverse developments,” it added.

The central bank acknowledged that the recent volatility in global oil prices as well as the increase in gas tariffs from November pose some risks to the FY24 outlook for inflation and the current account.

“The committee also noted some offsetting factors: These include the targeted fiscal consolidation in Q1; improvement in market availability of key commodities; and the alignment of interbank and open market exchange rates.”

The MPC noted four key developments since its September meeting —

  • The initial estimates for Kharif crops are encouraging and will have positive effects on other key sectors of the economy.
  • Second, the current account deficit narrowed considerably in August and September, which helped to stabilise the SBP’s FX reserves position amidst tepid external financing in these two months.
  • Fiscal consolidation remained on track, with both fiscal and primary balances improving during Q1-FY24.
  • While core inflation remains sticky, inflation expectations of both consumers and businesses improved in the latest pulse surveys.

The SBP said that in light of these developments, the MPC emphasised on continuing with the tight monetary policy stance.

The MPC, the statement mentioned, reiterated its earlier view that the real policy rate is significantly positive on a 12-month forward-looking basis and is appropriate to bring inflation down to the medium-term target of 5 – 7 percent by the end of FY25.

“However, the MPC noted that this outlook is based on continued fiscal consolidation and timely realization of planned external inflows,” the central bank’s statement added.

Since the last MPC meeting on September 14, when the interest rate was kept unchanged, several developments have taken place — the appreciation of rupee, decrease in petrol prices, expected inflation, decrease in the current account deficit and forex reserves.

Head of Equities at Intermarket Securities Raza Jafri told Geo.tv that the SBP was unlikely to rock the boat on the cusp of the International Monetary Fund (IMF) review and has unsurprisingly kept the policy rate unchanged at 22%.

However, he said, it does seem to be setting up grounds for interest rate cuts going forward, especially if the IMF review is successful and international oil prices remain under control.

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Business

It is anticipated that 150 ships would arrive at Gwadar by the year 2045, allowing the port to handle fifty percent of all imports.

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3 days ago

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In an effort to strengthen the port’s economic importance, the Federal Government has made the decision to direct fifty percent of all imports from the public sector to Gwadar Port.

By taking this action, which has the backing of the Special Investment Facilitation Council, the port’s financial situation is going to be improved.

The Cabinet will be presented with a summary of imports through Gwadar by the Ministry of Maritime Affairs, which will take place after Prime Minister Shehbaz Sharif’s recent trip to China.

When the next Cabinet Meeting takes place, Ahsan Iqbal, the Federal Minister for Planning, Development, and Special Initiatives, will examine the Chinese offer for the Karachi to Hyderabad Section of the ML-1 Project and bring it to the Cabinet.

Company preparations for the Shanghai International Import Expo, which will take place in November 2024, are being made by the Board of Investment and the Ministry of Commerce of Pakistan.

One of the most important aspects of the China-Pakistan Economic Corridor is the Gwadar port, which serves as a significant commerce route connecting China, the Middle East, Africa, and Europe. At this time, the Gwadar Port is able to accommodate two huge ships, and by the year 2045, it is anticipated that it would be able to handle up to 150 ships.

By developing the Gwadar Port, regional connectivity would be improved, employment will be created, and international investment will be attracted.

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The price of gold in Pakistan has experienced a significant surge.

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3 days ago

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Gold prices in Pakistan surged significantly on Thursday following two consecutive days of decline, with the price per tola rising by Rs2,000 to reach Rs262,100. This increase was in accordance with the downward trend in international market values.

The All-Pakistan Gems and Jewellers Sarafa Association (APGJSA) reported that the price of 10 grams of 24-karat gold rose by Rs1,714, reaching Rs224,708.

Conversely, the world gold market experienced an upward trajectory. According to the APGJSA, the global price of gold surged to $2,503 per ounce following a $22 gain during the trading session.

The local market experienced a significant decline in silver prices, decreasing from Rs50 to Rs2,900 per tola after a prolonged period.

The local market’s gold prices remain subject to the ever-changing dynamics of the international market, as well as domestic considerations such as currency exchange rates and domestic demand.

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The government has not met the deadline set by the International Monetary Fund (IMF) for the approval of a $7 billion loan.

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4 days ago

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On Tuesday night, there were virtual talks between representatives of the Finance Ministry and the IMF delegation, with the main topics being external finance and income generation.

According to people familiar with the situation, no date has been set for the IMF’s Executive Board to approve the loan despite the ongoing negotiations.

Officials from the Finance Ministry informed the IMF mission about the government’s initiatives to get outside funding during the discussions. Updates on loan rollovers and fresh finance commitments from allies were included in this. According to sources, the IMF has received a schedule, and loan rollovers are expected to be finished by the end of next week.

The $12 billion in debt must be rolled over before the loan can be approved by the Executive Board, according to the IMF mission.

In the virtual discussions, representatives of the Federal Board of Revenue (FBR) conversed with the IMF team over the revenue deficit. The FBR must reach its revenue goals for this month, according to the IMF mission. As a result, the IMF has asked the FBR to submit a thorough strategy outlining how it will close the gap left by the shortfall and guarantee that revenue goals are reached.

Apart from the conversations on outside funding, there are rumors that the Finance Ministry is actively holding talks with commercial banks in order to obtain new funding. According to reports, negotiations are taking place with four distinct sources for commercial loans, which are anticipated to support the government’s overall financial plan.

Finance Minister Muhammad Aurangzeb disclosed on Tuesday that the IMF was in favor of introducing targeted subsidies. He said that qualifying recipients might receive these subsidies through the Benazir Income Support Programme (BISP).

In order to guarantee consistency, the minister announced that this week’s talks with chief ministers will focus on implementing a similar policy across the country. He was having a casual conversation in parliament with the journalists.

In response to queries about outside funding, Aurangzeb revealed a $2 billion deficit and said that talks to close this gap are progressing. He stressed how crucial it is to obtain business loans.

He went on, “At this point, there’s a need to secure an agreement for commercial loans, not exactly their issuance,” emphasizing that debt rollover negotiations are nearing their conclusion and doing well. The minister expected that these developments would shortly be reported to the governments of allied countries by relevant authorities.

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