EUR 9.12 For Business Accounts Only

SBP Post-MPS Analyst Briefing Key Takeaways,(AKD Off the Analyst's Desk Apr 04, 2023)

AKD, Off the Analyst's Desk

SBP Post-MPS Analyst Briefing Key Takeaways

 

The Monetary Policy Committee (MPC) held its meeting today, wherein the benchmark policy rates in the country were hiked by 100bps to stand at 21%. The rate hike was lower than our expectations of 200bps increase. Following the announcement, Governor SBP held an analyst briefing, the key highlights of which are as follows:

 

• Inflation in the country increased to 35.4% in Mar’23 and the MPC noted that inflation readings are expected to remain elevated in the near future. However, the MPC stated that it sees inflation plateauing around current levels.
• The SBP expects the successive interest rate hikes in the recent past (400bps in a span of about a month) to begin having an impact on inflationary readings with a time lag. 
• The central bank noted that with the latest rate hike, Real Interest Rates (based on inflation expectations for next year and current policy rates) have been brought into positive territory.
• MPC reiterated that despite the contraction in the country’s CAD (Feb’23 CAD: US$74mn), loan payments have kept Pakistan’s liquidity under pressure. The committee, hence, views the completion of the 9th review of the IMF to be of the utmost importance to the health of the economy—where significant progress has been made. 
• Regarding debt servicing, the Governor apprised that at the start of FY23, Pakistan’s external liabilities stood at US$23bn, out of which majority have been either rolled over, refinanced, or serviced. For the last quarter, outstanding debt servicing amount stands at US$4.5bn, of which US$2.2bn is expected to be rolled over.
• In the event that the Staff Level Agreement with the IMF is signed, the SBP expects the fiscal year to end with FX reserves north of US$10bn held with the Central Bank.
• As for the central bank’s CAD expectations, the SBP revised its expectations downward to south of US$10bn for FY23, following the impacts of administrative measures taken to keep imports curbed in 9MFY23.
• The SBP noted that the economic activity in the country was dropping, with the LSM index contracting by 4.4% in 7MFY23. Furthermore, credit to private sector has dropped, with reduction in working capital and personal loans leading the trajectory.
• Guiding on the flow of remittances going forward, the SBP stated that remittance flow is expected to increase, driven by higher inflows during Ramadan and around Eid. Along with this, workers going abroad have increased back to pre-COVID levels, which would enhance remittance inflow.
• The MPC noted that the market liquidity conditions on a global level have tightened following the banking crisis after the fall of SVB, which has had an impact on the capital flow towards emerging markets.
• As for the inflation guidance, the SBP is targeting 5%-7% in the medium term, expected to be achieved by 2Q-3Q of FY25.

 

AKD Research