EUR 8.83 For Business Accounts Only

SBP MPS Analyst Briefing Key Takeaways, (AKD Off the Analyst's Desk Mar 02, 2023)

AKD, Off the Analyst's Desk

SBP MPS Analyst Briefing Key Takeaways

 

The State Bank of Pakistan (SBP) increased the benchmark policy rate in the country by 300bps, taking the rate to 20%. This hike is in line with our expectations given the current macro-economic backdrop. Following the announcement, the SBP governor made the following remarks in the analyst briefing:

• The increase in the policy rate is due to the rampant inflation prevalent in the country, with National CPI for Feb’23 clocking in at 31.5%YoY. SBP has now revised its estimates for average NCPI for FY23 to clock in at 27-29% for the year, increasing significantly from the 21-23% estimated previously.
• Real interest rates are expected to be positive at the current policy rate when accounting for the forecast of average CPI for the next 12 months. Acceleration in the core inflation continues to be a thorn in the country’s side, increasing by 2ppts over the last year.
• Despite a 67%YoY decrease in the country’s CAD, the country’s FX reserves remain well below requirements. Commenting on the country’s external financing needs, the governor stated that out of the US$23bn needed for external financing in the year, US$9.8bn has been paid, while US$6bn has been rolled over. Out of the remaining US$7.2bn, US$4.3bn is expected to be rolled over or refinanced, leaving US$2.9bn to be paid over the next 4 months. Furthermore, there is no need for re-profiling of the Eurobonds, given the low proportion they have out of total external debt along with no payment being due in FY23.
• Regarding rampant speculation of IMF’s demand on maintaining the exchange rate at border rates, we were apprised that IMF has made no such demands. Given the frequent illegality of goods being traded at the border along with the informal valuations of these rates, the Govt. can not derive exchange rates from border rates. The Rupee is one of the fastest depreciating currencies against the Greenback, depreciating by 19.2% since the last Monetary Policy Meeting.
• On the recent investigation against the banks involved in exchange rate tampering, the central bank has relayed its findings to the relevant authorities in the government. Fiscal action is currently being evaluated against the complicit banks, while alternatively, regulatory action is also a viable measure if fiscal action is not taken.
• The Committee has also moved its next meeting up to 4th April, in light of the highly volatile economic scenario the country has been facing in recent times.

 

AKD Research