Economy – Monetary Policy Announcement
MPC Briefing Notes
State Bank of Pakistan held the Monetary Policy Committee (MPC) meeting today, wherein the MPC increased the policy rate by 100bps to 21%.
Key Highlights
● The MPC noted that Inflation in March 2023 rose to 35.4% and is expected to stay high in the near future. Inflation expectations are plateauing, but at a high level. Today’s decision is important for anchoring inflation expectations and achieving price stability.
● The SBP has revised its Current Account deficit target to below USD6bn for FY23 compared to its initial projection of USD10bn.
● The committee highlighted that the debt servicing for the last quarter of FY23 is amounted to USD4.5bn, of which USD2.3bn will be rollovered during the said period.
● Furthermore, the MPS also highlighted three significant developments since the last meeting that includes: the current account deficit has decreased due to import containment, progress in completing the 9th review of the IMF’s EFF program, and challenges in accessing international capital markets due to global banking system strains.
● The MPC acknowledged a broad-based economic slowdown, as indicated by declining sales volumes of automobiles and POL in recent months, and a contraction in LSM output. These trends, combined with recent monetary tightening and fiscal consolidation measures, suggest a significant decrease in growth for FY23 compared to the post-floods assessment of November 2022.
● The MPC observed a decline in the current account deficit in February 2023, with a cumulative deficit of USD3.9bn for Jul-Feb FY23, a significant drop of 68% YoY amid import restrictions. Albeit, there has been a slight recovery in workers’ remittances in February, higher loan repayments relative to disbursements continue to strain foreign exchange reserves. In light of this, the Committee reiterated the crucial role of concluding the 9th review under the IMF program early, to fill FX reserve buffers.
● Going-Forward, the MPC noted that today’s decision along with previous accumulated monetary tightening pushed the real interest rate in positive territory on a forward-looking basis, until and unless the unexpected political and economic shocks happen. This will help anchor inflation expectations and steer inflation to the medium-term target of 5-7% by the end of FY25.
Important Disclosures
Disclaimer:
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.
