Sign in Subscribe
  • E-Papers
    • Profit Magazine
    • Pakistan Today
  • Headlines
  • Featured
  • Opinion
    • Comment
    • Editorial
  • Tech
    • Artificial Intelligence
  • World
  • Satire
Sign in
Welcome!Log into your account
Forgot your password?
Create an account
Sign up
Welcome!Register for an account
A password will be e-mailed to you.
Password recovery
Recover your password
Search
Sign inSubscribe
Profit Profit by Pakistan Today
Profit Profit
  • E-Papers
    • Profit Magazine
    • Pakistan Today
  • Headlines
    • Headlines

      Punjab cabinet clears flood relief, tax cuts and new schemes in…

      Headlines

      Pakistan forms 18-member panel ahead of Saudi business delegation’s visit

      Headlines

      Shehbaz urges Pakistan-Malaysia private sector to lead growth, eyes end to…

      Headlines

      Pakistan’s CDS risk falls 2,200 basis points, PM cites rising global…

      Headlines

      Exporters warn of major losses as DPP remains headless despite court…

  • Featured
    • Cover story

      Why P&G is leaving Pakistan

      Consumer Goods

      Tepid growth for Colgate Palmolive Pakistan

      Editor’s picks

      Trump tariffs expected to boost PEL’s exports to the US

      Editor’s picks

      Pension Reckoning

      Energy

      One more round of circular debt restructuring and why it still…

  • Opinion
    • AllCommentEditorial
      Comment

      Pakistan’s high-stakes crypto experiment

      Comment

      Do Pakistani businesses know how to diversify their business portfolios?

      Comment

      Pakistan’s tax myth: It isn’t the people, its the government

      Comment

      Market maker or market wrecker?

  • Tech
    • AllArtificial Intelligence
      Artificial Intelligence

      Experts project 7–12% GDP growth, 1 million jobs from Pakistan’s new…

      Headlines

      Air Link announces expansion plans with new production facility at Sundar…

      Tech

      OpenAI partners with Etsy, Shopify on ChatGPT payment checkout

      Headlines

      Islamabad IT Park to create 10,000 jobs, completion expected by December…

  • World
  • Satire

SBP hikes key interest rate by 25 basis points to 10.25%

Challenges to Pakistan’s economy persist despite narrowing as the current account deficit remains high, the fiscal deficit is elevated, and core inflation remains continuingly high, said SBP

By
Mohammad Farooq
-
31/01/2019
0
678
Facebook
Twitter
Linkedin
WhatsApp
Email

    LAHORE: Maintaining its hawkish trend, the State Bank of Pakistan (SBP) on Thursday announced a 25 basis points hike in the key interest rate to 10.25%, touching six-year highs.

    This makes it a cumulative increase of 450 basis points since January 2018, taking it to a six-year high of 10.25%.

    While addressing a press conference on Thursday, SBP governor Tariq Bajwa stated that the Monetary Policy Committee (MPC) had observed the effect of the governments’ stabilization measures were gradually unravelling.

    He added that consumer confidence had exhibited improvement amidst decreased economic uncertainty.

    However, Mr Bajwa said the fiscal deficit is yet to exhibit indications of consolidation notwithstanding the decrease in Public Sector Development Programme (PSDP) spending.

    He elaborated that a pronounced movement in the pattern of government borrowing from scheduled banks warrants inflationary worries.

    SBP governor explained, “Even as stabilisation measures gradually work through the economy, underlying inflationary pressures persist.”

    Mr Bajwa said a slight rise in exports and healthy growth in remittances had assisted in reining the current account deficit, however, “it still remains high.”

    According to the SBP governor, the financing of the current account deficit remained daunting as foreign direct investment, official inflows and private loans were inadequate to totally fund the deficit.

    Hence, a major chunk of the current account deficit was managed by exhausting the country’s own foreign exchange resources, which caused SBP net liquid foreign exchange reserves to decline to $7.2 billion by end of December last year, said the central bank chief.

    The central bank chief shared the realization of bilateral official inflows in the last few days has helped raise SBP net liquid foreign exchange reserves to $8.2 billion and the overall forex reserves to $14.8 billion as of January 25th.

    A note from Arif Habib Limited (AHL) Research said, “We believe the SBP might increase the policy rate by another 25bps during CY19 contingent to finalization of the IMF program in next couple of months.

    The contractionary monetary policy is required to curb growing inflationary pressure and imports via compression of domestic demand.

    Moreover, the international oil and commodity prices are expected to play a vital role as stabilizing/increasing global oil prices are expected to be negative for inflation and balance of payment.”

    According to the central bank, the economic data released after the last monetary policy committee in November last year indicate that the stabilization measures executed during the previous twelve months are taking hold.

    Additionally, key monthly indicators are exhibiting clear signs of deceleration in domestic demand and hence the current account deficit is narrowing, although gradually.

    Moreover, SBP said the rise in financial inflows is contributing to reduced stresses on the country’s external accounts.

    It added these developments are promising and contributed to decreasing some economic uncertainty.

    But the central bank cautioned challenges to Pakistan’s economy persist despite narrowing as the current account deficit remains high, the fiscal deficit is elevated, and core inflation remains continuingly high.

    Average headline CPI inflation was recorded at 6% for the first half of FY19, which was way higher compared to 3.8% recorded during the corresponding period of FY18.

    Also, the headline inflation on a year-on-year (YoY) basis has shown moderation in the last two months, majorly because of a steep plunge in prices of perishable food items and a decrease in petroleum product prices.

    However, SBP stated going forward, the second round of impacts of the exchange rate movements, increase in gas and electricity tariffs, higher government borrowings from SBP are likely to be neutralized by the delayed impact of the increase in interest rates and a decline in global oil prices on inflation.

    Its projected inflation to remain unchanged between 6.5 to 7.5%.

    As per SBP, the rise in inflation and the continuing economic challenges are having an impact on economic performance and real economic activity has exhibited a marked slowdown during the first half of FY19.

    It highlighted large-scale manufacturing contracted during the first five months of FY19 including a decline in production of all major Kharif crops from 2017’s levels.

    And the initial assessment of the wheat crop isn’t encouraging too, said the central bank.

    It projected the effect of changes in commodity producing sector on the services sector is likely to cause real GDP growth to contract to around 4% for FY19, well below the annual target of 6.2%.

    And the credit to private sector (CPS) exhibited a net increase of Rs570.4 billion in the first half of FY19, approximately double the level of growth during the corresponding period of FY18.

    “In absolute terms, net budgetary finance from SBP reached Rs 3,770.5 billion during 1st Jul-18th Jan FY19, which is 4.3 times the amount borrowed during the same period last year,” said SBP.

    SBP believes this financing will have inflationary consequences in the future and a major chunk of this borrowing was used to retire government debt from commercial banks i.e. a net retirement of Rs3035.8 billion.

     

    • TAGS
    • current account deficit
    • fiscal deficit
    • Interest Rate Hike
    • Monetary Policy Committee (MPC)
    • Monetary Policy Committee of the State Bank of Pakistan (SBP)
    • Private Sector offtake
    • State Bank of Pakistan (SBP)
    Facebook
    Twitter
    Linkedin
    WhatsApp
    Email
      Mohammad Farooq
      The author is an Assistant News Editor at Profit by Pakistan Today. His works have been published in Dawn, Express Tribune, LiveMint India, Huffingtonpost India and The News on Sunday. He tweets @MohammadFarooq_

      RELATED ARTICLESMORE FROM AUTHOR

      Headlines

      SBP keeps policy rate unchanged at 22%

      Banking

      As inflationary pressures subside, is a rate cut on the horizon?

      Headlines

      Current account deficit narrows by 91% in October, stands at $74m

      Whatsapp Newsletter
      Email Newsletter News Tips
      Profit by Pakistan Today
      Publishing Editor: Babar Nizami -- Editor Multimedia: Umar Aziz Khan -- Senior Editor: Abdullah Niazi -- Editorial Consultant: Ahtasam Ahmad -- Business Reporters: Taimoor Hassan | Shahab Omer l Zain Naeem | Shahnawaz Ali | Ghulam Abbass | Ahmad Ahmadani | Aziz Buneri -- Sub-Editor: Saddam Hussain -- Video Producer: Talha Farooqi -- Director Marketing : Mudassir Alam | Regional Heads of Marketing: Agha Anwer (Khi) | Kamal Rizvi (Lhe) | Malik Israr (Isb ) -- Manager Subscriptions: Irfan Farooq -- Pakistan’s #1 business magazine - your go-to source for business, economic and financial news.
      Contact us: [email protected]
      • Privacy policy
      Copyright © 2025. Pakistan Today. All Rights Reserved.