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Key takeaways from SBP’s off-cycle MPC meeting

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2 years ago

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In an off-cycle review, the State Bank of Pakistan (SBP) raised its key interest rate by 300 basis points on Thursday, exceeding investor expectations, as the cash-strapped country seeks to encourage the International Monetary Fund (IMF) to release critical financing.

The key rate of the SBP now stands at 20%, its highest level since October 1996, with consumer price inflation now at its highest level for almost 50 years.

The Monetary Policy Committee’s (MPC) next meeting is set to be held on April 4.

Arif Habib Limited compiled key takeaways from the meeting’s outcome, here they are:

– National CPI has swelled up to 31.5% YoY during February 2023, with core inflation at 17.1% in urban and 21.5% in the rural basket.

– The near-term inflation outlook has deteriorated post external and fiscal adjustments undertaken recently.

– The MPC has raised its CPI forecast for the year to 27-29% against the November 2022 forecast of 21-23%.

– Inflation in upcoming months can drift higher, albeit, at a gradual pace, as the impact of said adjustments unfolds.

– The committee noted that external account challenges persist despite the significant contraction in the current account deficit, recorded at $242 million in January 2023 (lowest since March 2021).

– Pressure on forex reserves and rupee-dollar parity also remain in place, regardless of a 67% decline in current account deficit in the Jul-Jan 2023 period given ongoing debt repayments, and lower financial inflows amid “rising global interest rates and domestic uncertainties.”

– The conclusion of the ninth review of the IMF’s EFF remains crucial to address external-sector vulnerabilities.

– Additionally, the MPC urged the implementation of energy conservation measures to alleviate pressure on the external account and to meet vital imports from other sectors.

– Fiscal consolidation remains critical for economic stability and recent measures like increase in GST and excise duties, restricted subsidies, and adjustment in energy prices should help contain the widening fiscal and primary deficits.

– This will complement the ongoing monetary tightening and help bring down inflation over the medium term.

– The committee also assessed the impact of further monetary tightening on the country’s financial stability and near-term growth.

– It was observed that “risks to financial stability remain contained, given that financial institutions are broadly well capitalized.”

– However, growth will be compromised as a trade-off.

– However, the MPC reiterated that the long-term costs of letting inflation become entrenched outweigh the immediate costs of bringing it down.

– Barring any future shocks, the committee believes that today’s decision has pushed the real interest rate into positive territory on a forward-looking basis.

– The medium-term CPI target remains unchanged at 5-7%, by end-FY25. 

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Trade Agreements Worth $10.70 Million Were Signed At Expo For Pakistan And Indonesia To Increase Their Trade With The Support Of SIFC

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Through the assistance of the Special Investment Facilitation Council (SIFC), Pakistan and Indonesia have reiterated their dedication to improving their economic and commercial ties.

The participation of a Pakistani trade delegation was made possible by Indonesia at a recent trade expo, which resulted in the formation of agreements and memorandums of understanding with a total value of 10.70 million $. In addition to retail items and automobile components, these agreements span industries such as coconut, cocoa, ginger, spices, and retail goods.

As a key step toward improving economic ties, particularly with the Sindh business community, the participation of the group was praised by Tegu Viveko, who is acting as the Consul General of Indonesia.

Abid Nisar, the head of the Pakistan-Indonesia business council, has stated his confidence regarding the possibility of enhanced relations between the two countries, highlighting the historical and cultural origins of the connection.

In its capacity as a member of the G20, Indonesia intends to assist both nations in maximizing the benefits of their partnership in order to achieve better economic stability.

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Pakistan’s textile exports rose by 9.51% to $4.520 billion.

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Pakistan’s textile exports had a 9.51 percent increase in the first quarter of the current financial year (2024-25) compared to the same quarter of the previous year.

The Pakistan Bureau of Statistics (PBS) reported that textile exports from the country amounted to US $4.520 billion during July-September (2024-25), compared to US $4.127 billion during the same period in the previous year (2023-24).

The textile goods that facilitated trade expansion comprised cotton fabric, whose exports rose by 10.20 percent to $523.63 million from $475.187 million, and knitwear, which experienced a 14.13 percent increase in exports to $1,268.908 million from $1,111.818 million.

Other commodities that experienced trade growth included bed wear, with exports increasing by 13.31 percent to $794.972 million from $701.570 million; towels, which rose by 7.04 percent to $261.316 million from $244.134 million; and tents, canvas, and tarpaulin, which grew by 5.43 percent to $28.796 million this year compared to $27.312 million last year.

The export of readymade garments increased by 23.17 percent to $996.831 million from $809.316 million; art, silk, and synthetic textiles rose by 15.79 percent to $96.482 million; made-up articles (excluding towels and bed wear) grew by 12.10 percent to $191.050 million from $170.422 million; and the export of other textile materials surged by 8.73 percent to $187.145 million from $172.112 million.

The textile commodities that had negative trade growth were cotton yarn, with exports decreasing by 48.45 percent, from $315.404 million to $162.579 million, while raw cotton exports fell by 100 percent from 6.621 million to zero during the reviewed months.

The export of yarn, excluding cotton yarn, decreased by 15.15 percent, from $10.096 million to $8.566 million.

In September 2024, textile exports experienced a year-on-year growth of 17.92 percent compared to the same month in the previous year.

Textile exports from the country in September 2024 amounted to US $1,604.481 million, compared to US $1,360.902 million in September 2023.

Textile exports from the country experienced a nominal decline of 2.40 percent in September 2024, compared to the $1,644.333 million reported in August 2024, according to PBS statistics.

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PIA is designated as the official airline of IDEAS 2004.

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PIA has been designated as the official airline of IDEAS 2024. The PIA will utilise its aircraft for the promotion of IDEAS 2024.

In this context, the emblems of IDEAS 2024 have been affixed to two Boeing 777 aircraft and two Airbus planes of Pakistan International Airlines.

The International Defence Exhibition and Seminar (IDEAS) 2024 is scheduled to commence from November 19 to 22 at the Karachi Expo Centre.

The government of Pakistan places significant value on IDEAS. The show draws several delegates and is perceived as a means to promote their local arms trade.

The inaugural IDEAS launch took place in 2000, serving as a platform to promote Pakistan’s indigenous arms manufacturing industry while allowing international suppliers to provide solutions for the needs of Pakistan’s tri-services.

The event, consistently held at the Karachi Expo Centre, attracted forty-five foreign delegations in its inaugural year.

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