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Key takeaways from SBP’s off-cycle MPC meeting

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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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The inaugural flight of Azerbaijan Airlines is between Baku and Karachi.

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The national airline of Azerbaijan launched direct flights from Baku to Karachi today. There will be two weekly flights on this route, on Thursdays and Sundays.

The first flight will land in Karachi, and Azerbaijan’s ambassador, Khazar Farhadov, will be there to greet it.

This evening also marks the departure of the inaugural flight from Karachi to Baku, in addition to the arrival of the flight from Baku.

Azerbaijan Airlines said last month that it would be growing its network and flight operations in Pakistan.

Aviation insiders have verified that Azerbaijan Airlines is preparing to launch service to Karachi in the coming month of April.

In addition to its current services in Islamabad and Lahore, the airline plans to launch its Karachi route on April 18, with the inaugural flight anticipated to depart on that date.

Azerbaijan Airlines has been given permission to operate flights on the Karachi route, according to sources within the Civil Aviation Authority (CAA).

Following a bilateral agreement between the two nations, Azerbaijan Airlines has been given permission to extend its operations in Pakistan.

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Fly Jinnah opens a new route internationally.

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Two weekly flights will be the starting frequency of the new route, which will connect the two cities.

According to a representative for Fly Jinnah, the company is pleased to announce the opening of a third international route from Islamabad to Muscat, the capital city of Oman, marking another significant milestone after the successful debut of flights from Islamabad and Lahore to Sharjah.

According to him, this development is in line with our goal of giving our clients more options for reasonably priced, value-driven local and international air travel.

The airline serves five main cities in Pakistan: Karachi, Lahore, Islamabad, Peshawar, and Quetta. Its fleet consists of five Airbus A320 aircraft, all of which are contemporary.

In addition to the current flight path to Sharjah, United Arab Emirates, this new route expands Fly Jinnah’s network of foreign destinations.

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Tajir Dost app: traders don’t seem interested in registering

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To tax retailers in Pakistan, the Tajir Dost app was released. The sources stated that the government hopes to tax 3.5 million merchants through the app.

Ajmal Baloch, the president of All-Pakistan Anjuman-e-Tajran, stated that he made reservations with FBR on the SRO within a week.

The Federal Board of Revenue (FBR), according to him, cannot be a “Tajir Dost” because of its unethical actions.

Baloch believed that since electricity bills allow traders to pay a predetermined advance income tax, further taxes are unnecessary.

The trader, according to him, is already paying thirteen different kinds of taxes on the commercial meter. “A trader already pays between Rs. 15,000 and Rs. 20,000 in taxes annually, but you are requesting Rs. 1,200 per month in taxes.”

Mr. Ajmal summoned representatives of the Federal Board of Revenue (FBR) to a meeting with the trade associations to talk about the indirect taxes that the merchants are paying.

Additionally, he claimed that FBR officers are charging the traders, the majority of whom are less educated, “monthly charges.”

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