MPC Briefing Notes
State Bank of Pakistan held the Monetary Policy Committee (MPC) meeting yesterday, wherein the MPC kept the policy rate unchanged at 21%.
● The MPC noted higher inflation in April and May of this outgoing year. With subdued domestic demand, a tight monetary stance, and ongoing external challenges, the MPC believes inflation peaked at 38 percent in May’23 and it expects a decline from June onwards, barring unforeseen developments.
● The Committee acknowledged several significant developments since the last meeting. It includes, the current account balance achieved consecutive surpluses in March and April 2023, alleviating some pressure on foreign exchange reserves, government presented the FY24 budget on June 9, outlining a slightly contractionary fiscal stance compared to revised estimates for FY23 along with global commodity prices and financial conditions have recently eased and are anticipated to continue doing so in the near term.
● The SBP anticipates to transfer around PKR1tr to the Government in the form of SBP profits during FY24.
● SBP Governor clarified that Pakistan is not currently considering any bilateral debt restructuring, dismissing earlier statements made by the finance minister. He firmly stated that there is no plan in place.
● As per the SBP, the total repayment of external financing amounted at USD3.6bn for Jun’23, of which USD0.4bn has already been settled. However, the remaining USD2.3bn is expected to be rolled over while an additional $0.9 billion needs to be financed.
● Regarding the current account deficit, the SBP projects USD3.5bn for FY23. This is attributed to import restrictions followed by policy measures taken by the government. The CAD for FY24 is expected to remain below USD4bn.
● Going-Forward, the MPC noted that today’s decision has pushed the real interest rate in positive territory on a forward-looking basis, until and unless the unexpected future shocks happen. This will help anchor inflation expectations and steer inflation to the medium-term target of 5-7% by the end of FY25.
This report has been prepared by Chase Securities Pakistan (Private) Limited and is provided for information purposes only. Under no circumstances, this is to be used or considered as an offer to sell or solicitation or any offer to buy. While reasonable care has been taken to ensure that the information contained in this report is not untrue or misleading at the time of its publication, Chase Securities makes no representation as to its accuracy or completeness and it should not be relied upon as such. From time to time, Chase Securities and/or any of its officers or directors may, as permitted by applicable laws, have a position, or otherwise be interested in any transaction, in any securities directly or indirectly subject of this report Chase Securities as a firm may have business relationships, including investment banking relationships with the companies referred to in this report This report is provided only for the information of professional advisers who are expected to make their own investment decisions without undue reliance on this report and Chase Securities accepts no responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report or its contents At the same time, it should be noted that investments in capital markets are also subject to market risks This report may not be reproduced, distributed or published by any recipient for any purpose.