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SBP jacks up key rate to record high of 22% after withdrawal of guidance on imports

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2 years ago

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  • Since Jan 2022, SBP has raised rates by a total of 1,250bps.
  • Says decision necessary to keep real interest rate in positive territory.
  • Also states decision would help “anchor inflation expectations”.

Following withdrawal of its guidance on imports, the State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) on Monday decided to jack up the policy rate by 100bps to 22% in an emergency meeting days after it had announced no change in the interest rate. 

Since January 2022, the central bank has raised rates by a total of 1,250bps.

In a statement, the MPC explained the contest of the emergency meeting as in the last meeting on June 12 it had decided not to jack up the policy rate. Back then it had viewed it as appropriate to achieve the objective of price stability “barring any unexpected domestic and external shocks”.

However, the SBP said that it has now decided to increase the interest rate because of “two important domestic developments” that have “slightly deteriorated inflation outlook and which could potentially increase pressure on the already stressed external account”.

“First, there are certain upward revisions in taxes, duties and PDL rate in FY24 budget as approved by the National Assembly on June 25. Second, the SBP, on June 23, withdrew its general guidance for commercial banks on prioritisation of imports,” the MPC said. It added that the withdrawal of the guideline on imports was “necessary” due to the ongoing negotiations with the International Monetary Fund (IMF) but has “increased the upside risks to the inflation outlook”.

“The committee views that additional tax measures are likely to contribute to inflation both directly and indirectly, while the relaxation in imports may exert pressures in the foreign exchange market. The latter may result in higher-than-earlier anticipated exchange rate pass-through to domestic prices,” it further added.

“With this background, the MPC convened an emergency meeting to respond to these developments. The MPC decided to raise the policy rate by 100 bps to 22 per cent, effective 27th June 2023,” said the central bank. It added the decision was “necessary to keep real interest rate firmly in the positive territory on a forward-looking basis”.

The central bank also believes that the decision would help “anchor inflation expectations” and “support bringing down inflation towards the medium-term target of 5–7% by the end of FY25”.

“The MPC views that today’s decision — along with the expected completion of the ongoing IMF program and the government adhering to the target of generating a primary surplus in FY24 would help in addressing external sector vulnerabilities and reduce economic uncertainty. The committee reiterated that it would continue to carefully monitor evolving economic developments and stands ready, if necessary, to take appropriate action to achieve the objective of price stability over the medium term,” the SBP said. 

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With its second-largest surge ever, PSX approaches 114,000 points.

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2 days ago

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Driven by renewed activity from both private and government financial institutions, the Pakistan Stock Exchange (PSX) saw its second-largest rally in history on Monday.

The market regained many important levels in a single trading session as it rose with previously unheard-of momentum.

Intraday trading saw a top increase of 4,676 points, and the PSX’s benchmark KSE-100 Index gained 4,411 points to settle at 113,924 points. This impressive rebound demonstrated significant investor confidence by reestablishing the 100,000, 111,000, 112,000, and 113,000-point levels.

The market also saw the 114,000-point limit reestablished during the trading session.

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Experts credited the spike to heightened institutional investor activity and hope for macroeconomic recovery. Considered a major market recovery, the rally demonstrated the market’s tenacity and development potential.

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In interbank trade, the Pakistani rupee beats the US dollar.

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In the international exchange market, the US dollar has continued to weaken in relation to the Pakistani rupee.

The dollar fell to Rs278.10 from Rs278.17 at the beginning of interbank trading, according to currency dealers, a seven paisa loss.

In the meantime, there was a lot of turbulence in the stock market, but it recovered and moved into the positive zone. The KSE-100 index recovered momentum and reached 116,000 points after soaring 1,300 points.

Both currency and stock market swings, according to analysts, are a reflection of ongoing market adjustments and economic uncertainty.

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Phase II of CPEC: China-Pakistan Partnership Enters a New Era

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The cornerstone of economic cooperation between the two brothers and all-weather friends is still the China-Pakistan Economic Corridor, the initiative’s flagship project.

In contrast to reports of a slowdown, recent events indicate a renewed vigour and strategic emphasis on pushing the second phase of CPEC, known as CPEC Phase-2, according to the Ministry of Planning, Development, and Special Initiatives.

According to the statement, this crucial stage seeks to reshape the foundation of bilateral ties via increased cooperation, cutting-edge technology transfer, and revolutionary socioeconomic initiatives.

Planning Minister Ahsan Iqbal is leading Pakistan’s participation in a number of high-profile gatherings in China, such as the 3rd Forum on China-Indian Ocean Region Development Cooperation in Kunming and the High-Level Seminar on CPEC-2 in Beijing.

His involvement demonstrates Pakistan’s commitment to reviving CPEC, resolving outstanding concerns, and developing a strong phase-2 roadmap that considers both countries’ long-term prosperity.

At the core of these interactions is China’s steadfast determination to turn CPEC into a strategic alliance that promotes development, progress, and connectivity.

Instead of being marginalised, CPEC is developing into a multifaceted framework with five main thematic corridors: the Opening-Up/Regional Connectivity Corridor, the Innovation Corridor, the Green Corridor, the Growth Corridor, and the Livelihood-Enhancing Corridor.

With the help of projects like these, the two countries will fortify their partnership, and CPEC phase-2 will become a model of global economic integration and collaboration that benefits not just China and Pakistan but the entire region.

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