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SBP gears up to ‘revise’ interest rates in off-cycle review on March 2

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2 years ago

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  • No MPC meeting held to date since last month, says SBP.
  • Market expects SBP to raise benchmark interest rates.
  • Government agreed to hike interest rate from 17% to 19%.

The State Bank of Pakistan (SBP) on Tuesday “preponed” its Monetary Policy Committee (MPC) meeting on March 2 — which was initially scheduled to meet for March 16 — in another attempt to increase the pace of efforts to secure the much-awaited International Monetary Fund’s (IMF) tranche. 

The SBP announced on its official Twitter handle that “the forthcoming meeting of the Monetary Policy Committee has been preponed and now it will be held on Thursday, March 02, 2023,” the central bank announced on its Twitter handle.

The SBP’s chief spokesperson Abid Qamar had said earlier that, following the meeting last month, no MPC meeting had been held to date.

The MPC was established under the SBP’s Amendment Act, which is empowered to take a decision keeping in view the macroeconomic fundamentals.

The market expects the SBP to raise benchmark interest rates as the rise in treasury yields in the last auction hinted towards market weighing-in concerns on the economic front with the investors continuing to take note of rising inflation around the world as well as in Pakistan, Arif Habib Limited stated in a commentary released earlier.

Moreover, sources had told Geo News last week thatthe coalition government had agreed to hike the interest rate from the existing level of 17% to 19% under one of the major conditions put forth by the Fund to revive the loan programme.

However, analysts believed that the SBP needed to bring forward the MPC meeting date as the ministry of finance cannot afford failure in the next T-bill auction.

It is to be highlighted that the Fund and the central bank had held a round of discussions about the possibility of further tightening of monetary policy and building up foreign exchange reserves by the end of June 2023.

The IMF had also asked the SBP for hiking the policy rate by 300 to 400 basis points in order to move towards the interest rate from a negative to a positive trajectory.

The cash-strapped country is undertaking key measures to secure IMF funding, including raising taxes, removing blanket subsidies, and artificial curbs on the exchange rate. While the government expects a deal with IMF soon, media reports say that the agency expects the policy rate to be increased.

Off-cycle rate reviews are not uncommon in Pakistan, though.

Adnan Sheikh, Assistant Vice President of Research at Pak Kuwait Investment Company, said that a rate hike is imminent.

Fahad Rauf, Head of Research at Ismail Iqbal Securities, said that the IMF has given a target to at least keep rates higher than core inflation.

“Pakistan has two core inflation readings i.e., urban (15.4% for Jan-23) and rural (19.4%) and no national core number is released. If the SBP tries to bring rates above rural core inflation, it requires a rate hike of 200-300 bps,” he said.

Mohammad Ayub Khuhro, a fund manager at a local fund, said that recent economic data on government finances suggest that it was running low on its cash balances held with the central bank.

“This is why the government went ahead with picking up their desired targets despite a signalling effect it would send to the markets,” Khuhro said.

“The government has effectively bypassed the central bank in order to fulfil IMF conditions by accepting a higher cut-off,” he added.

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Finance Minister Meets With World Leaders at World Economic Forum in Davos

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During his attendance at the World Economic Forum in Davos, Switzerland, Finance Minister Muhammad Aurangzeb has met with officials of organisations and leaders of many nations.
Bangladesh’s Chief Advisor, Muhammad Younas, met with Mohammad Aurangzeb.
On the fringes of the World Economic Forum’s Annual Meeting 2025 Opening Banquet, there was an informal meeting.
Additionally, the Finance Minister met with Anwar Ibrahim, the Prime Minister of Malaysia.
Both leaders discussed economic cooperation and bilateral ties.
Muhammad Aurangzeb also had a meeting with Dp World’s Rizwan Soomro and Yuvraj Narayan.
They talked about how to strengthen Pakistan’s logistics and infrastructure systems to support trade.
“The Pakistani government is committed to advancing joint projects and values partnerships in both business-to-business and business-to-government cooperation,” the finance minister added.

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China will establish a $250 million EV production facility in Pakistan.

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As Islamabad looks to Beijing to work with it to establish industrial zones for the production of electronic vehicles, the media said Wednesday that China’s ADM Group would invest $250 million to establish an electric vehicle manufacturing unit in Pakistan.

With an even more ambitious target of 90 percent by 2040, the Pakistani government established the National Electric Vehicles Policy (NEVP) in 2019 with the goal of having 30 percent of all passenger cars and heavy-duty trucks be electric by 2030.

By 2030, the policy aimed to achieve 50% of new sales for two- and three-wheelers and buses, and by 2040, 90%.

As part of the Special Investment Facilitation Council’s efforts to draw in foreign investment, Radio Pakistan reported that the Chinese company ADM Group had announced an investment of $250 million to establish an EV manufacturing plant in Pakistan.

“The switch to EVs is anticipated to save billions of dollars by reducing the cost of fuel imports.”

More than 3,000 electric vehicle charging stations will be installed throughout Pakistan, a South Asian nation, as part of ADM Group’s $350 million investment in the EV industry last year.

Pakistan announced earlier this month that, as part of its ongoing energy sector reform aimed at increasing demand, it would reduce the power rate for operators of electric vehicle charging stations by 45 percent.

Additionally, financial programs for e-bikes and the conversion of gasoline-powered two- and three-wheeled vehicles are planned by the government.

On January 15, the government approved a lower tariff of 39.70 rupees ($0.14) per unit, which will take effect in a month. The previous tariff was 71.10 rupees.

The government anticipates that investors in the industry will see an internal rate of return of over 20 percent.

There are currently over 30 million two- and three-wheeled cars in Pakistan, and they use more than $5 billion worth of petroleum each year, according to a report that Power Ministry adviser Ammar Habib Khan provided to the government and that was covered by Reuters.

The paper estimates that the ministry will save around $165 million in gasoline import expenses each year by converting 1 million two-wheelers to electric motorcycles in a first phase, at an estimated net cost of 40,000 rupees per bike.

In September, BYD Pakistan, a joint venture between China’s BYD and the Pakistani automaker Mega Motors, informed Reuters that, in accordance with international goals, up to 50% of all vehicles purchased in Pakistan by 2030 will be electrified in some way.

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The government has introduced a comprehensive strategy to enhance industrial investment.

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Authorities are poised to execute an ambitious investment promotion strategy through a collaborative initiative between the National Institute of Public Administration (NIPA) and the Pakistan Administrative Staff College, aiming for substantial enhancements in industrial investment and economic development.

The Special Investment Facilitation Center (SIFC) will be instrumental in this transformative drive by establishing “Business Facilitation Centers” aimed at optimizing investment processes and attracting both domestic and foreign capital.

Principal features of the comprehensive plan encompass:

  1. Forming collaborative working groups to augment domestic and international investment prospects
  2. Formulating a comprehensive strategy to eradicate obstacles to industrial development
  3. Formulating a novel model to tackle issues in the execution of industrial projects
  4. Striving to enhance Pakistan’s international business rating by 50 points
    Targeting $20 billion in foreign industrial investments within the next five years.

The approach prioritizes digital transformation to enhance the transparency and efficiency of the investment process. SIFC’s strategy emphasizes fostering a favorable atmosphere for investors by streamlining bureaucratic processes and offering strategic assistance.

National administration officers are conducting ongoing study to identify and mitigate potential investment barriers, while a specialized research group is formulating a comprehensive strategy to solve current hurdles in industrial growth.

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