Business

Monetary policy: SBP jacks up interest rate to 15% — highest since November 2008

Published

2 years ago

Farwa

SBP has cumulatively increased the rate by 800 basis points since Sept 2021 to control inflation.
MPC to meet next on August 22; will carefully monitor developments affecting prospects for inflation.
Central bank expects rate hike to help prevent de-anchoring of inflation expectations, provide support to rupee.

KARACHI: In line with the market expectation, the State Bank of Pakistan (SBP) on Thursday aggressively raised the benchmark interest rate by a massive 125 basis points to 15% — the highest since November 2008.

The rate hike came as the coalition government is trying hard to revive the much-awaited International Monetary Fund (IMF) for the resumption of a $6-billion loan programme that had been stalled since early April.

The central bank has cumulatively increased the rate by 800 basis points since September 2021 to control inflation and narrow the current account deficit.

During today’s meeting, under the chair of Acting Governor Dr Murtaza Syed, it was decided that the interest rates on export finance scheme (EFS) and long-term financing facility (LTFF) loans are now being linked to the policy rate to strengthen monetary policy transmission while continuing to incentivise exports by presently offering a discount of 500 basis points relative to the policy rate.

According to a statement issued by the central bank, this combined action continues the monetary tightening underway since last September, “which is aimed at ensuring a soft landing of the economy amid an exceptionally challenging and uncertain global environment.”

“It should help cool economic activity, prevent a de-anchoring of inflation expectations and provide support to the rupee in the wake of multi-year high inflation and record imports,” the statement read.

Three major developments since May

The central bank noted that since the last meeting, the Monetary Policy Committee noted “three encouraging developments”.

The unsustainable energy subsidy package was reversed and an FY23 budget centered on strong fiscal consolidation was passed which has paved the way for completion of the on-going review of IMF programme
A $2.3 billion commercial loan from China helped provide support to foreign exchange reserves, which had been falling since January due to current account pressures, external debt repayments and paucity of fresh foreign inflows
Economic activity remained robust, with the momentum of the last two years of near 6% growth carrying into the start of FY23.

However, the MPC noted that several adverse developments overshadowed this aforementioned positive news.

It stated that globally, inflation is at multi-decade highs in most countries and central banks are responding aggressively, leading to depreciation pressure on most emerging market currencies. While domestically, as energy subsidies were reversed, both headline and core inflation increased significantly in June, rising to a 14-year high.

‘Pakistan facing large negative income shock’

“Against this challenging backdrop, the MPC noted the importance of strong, timely and credible policy actions to moderate domestic demand, prevent a compounding of inflationary pressures and reduce risks to external stability,” the statement read.

The MPC members stated that like most of the world, “Pakistan is facing a large negative income shock from high inflation and necessary but difficult increases in utility prices and taxes.”

The central bank believes that without decisive macroeconomic adjustments, there is a significant risk of substantially worse outcomes that would compromise price stability, financial stability and growth.

Hinting at further monetary policy tightening in the next meeting scheduled to be held on August 22, the MPC noted that the runaway inflation and foreign exchange reserves depletion would require sudden and aggressive tightening actions later that would be significant “more disruptive for economic activity and employment.”

“Adjustment is difficult but necessary in Pakistan, as it is all over the world. However, in the interest of social stability, the burden of this adjustment must be shared equitably across the population, by ensuring that the relatively well-off absorb most of the increase in utility prices and taxes while well-targeted and adequate assistance is provided to the more vulnerable,” it stated.

“The MPC will continue to carefully monitor developments affecting medium-term prospects for inflation, financial stability, and growth and will take appropriate action to safeguard them,” the central bank said.

Business

Exchange achieves all-time high: KSE-100 index surpasses 72,500 points

Published

14 hours ago

Farwa

With the benchmark KSE-100 index hitting a record-breaking high of 72,501 points, the Karachi Stock Exchange saw yet another incredible rise.

Within Pakistan’s financial environment, investors demonstrated a strong sense of trust in the market as the bullish trend continued.

As a result of the significant inflow of investment and optimism among market players, the index had an amazing 450-point rise during the trading session.

In their analysis of the market’s remarkable performance, financial analysts pointed to a number of causes for the upward trend, such as encouraging economic data, robust company profits, and the government’s proactive measures to promote economic expansion.

The durability and upward momentum of the market have also been greatly aided by continuous infrastructural investments and efforts meant to boost investor confidence.

In the meantime, interbank rates increased by six paisas, and the US dollar’s value saw a slight rise in the currency market. As a result of the current market conditions and the dynamic nature of foreign exchange swings, the dollar was quoted at Rs 278.45 in the interbank market.

Business

The investment plan for K-Electric will be audited every three months.

Published

14 hours ago

Farwa

In light of K-Electric’s inability to persuade NEPRA with its Rs. 484 billion investment plan, the regulatory body has decided to hold off on making changes to the utility’s Transmission & Distribution Investment Plan until FY 2030.

As stated in the order, the NEPRA will select the terms of reference (ToR) for the third-party audit in addition to announcing the quarterly audit. A report on the company’s investment plan’s progress will need to be submitted every quarter.

A performance report would also be required under the investment plan by K-Electric, Karachi’s only power distribution utility, according to the statement. A secure mechanism to avoid electrical mishaps was also mandated by the authority to the utility.

In the meantime, the power distribution firm stated in a statement that the investment plan will boost the utility’s infrastructure to meet present and future demands, decrease transmission and distribution losses, and increase customer base growth.

With investments totaling Rs. 544 billion, KE has been able to more than halve its T&D losses and quadruple its customer base and power consumption since privatisation, according to the statement.

A hearing in March 2023 was held to inform stakeholders about the projects that KE management had planned for FY2024–FY2030, and the statement claimed that the plan had been presented in compliance with regulatory requirements.

In terms of investment areas including expansion, energy loss reduction, network rehabilitation, maintenance, and safety, KE claimed to have clearly defined priorities and projects for this era.

The plan calls for the construction of transmission lines and grids, which will increase the dependability of KE’s network and make it possible to take on more electricity from the National Grid.

In order to manage the city’s needs through targeted investments and tech-based interventions, CEO KE Moonis Alvi said, “We are looking to invest $2 billion in Transmission and Distribution over the next 7 years.” The work of all the stakeholders who have contributed to this trip and who will help us modernise our infrastructure and get ready for the future is something I’d like to acknowledge.

The investment plan is a supplement to the business’s Power Acquisition Programme, which outlines KE’s goal of having 30% renewable energy in its generation mix by 2030. As part of its efforts to provide everyone with access to reasonably priced energy, the firm has also been granted regulatory permission for its RFPs for 640 MW of renewable projects.

Business

$399 million in airline revenue is being blocked by Pakistan. IATA

Published

15 hours ago

Farwa

Pakistan and Bangladesh have been urged by the International Air Transport Association (IATA) to promptly release airline profits that are being withheld in violation of international agreements.

“Airlines are unable to repatriate over $720 million ($399 million in Pakistan and $323 million in Bangladesh) of revenues earned in these markets, resulting in a severe situation,” an IATA statement stated.

“Money-denominated expenses like lease agreements, spare parts, overflight fees, and fuel must be paid for in a timely manner by repatriating revenues to their home countries.”

Delaying repatriation raises exchange rate risks for airlines and violates bilateral agreements’ international commitments. In order for airlines to effectively continue to offer the aviation connectivity that both of these countries depend on, Pakistan and Bangladesh must immediately release the more than $720 million that they are blocking, according to Philip Goh, Regional Vice President for Asia-Pacific at IATA.

Pakistan needs to make the difficult repatriation procedure less complicated. According to the statement, this presently includes the need to present audit certifications and tax exemption certificates, both of which create needless delays.

Approximately 425,000 jobs and $2.8 billion in economic activity were supported by Pakistan’s aviation industry prior to COVID-19. Passenger numbers are predicted to increase by more than 2.5 times by 2040 after returning to pre-COVID levels in 2023, according to the statement.