KARACHI: The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) has decided to convene its meeting before the announced schedule in order to review the monetary policy and address the economic challenges.
The committee is expected to further tighten the monetary policy due to rising inflationary pressure on the economy and higher current account deficit. The market is expecting an increase of 100 to 200 basis points in the key policy rate in its rescheduled meeting to be held on Friday.
According to an announcement, the MPC has decided to bring forward its next meeting from the previously announced date of November 26, 2021. The MPC meeting will now be convened a week earlier, ie, on Friday, November 19 at SBP Karachi.
The SBP said that the meeting has been brought forward in light of recent unforeseen developments that have affected the outlook for inflation and the balance of payments, and to help reduce the uncertainty about monetary settings prevailing in the market. The MPC will take stock of these developments and decide about monetary policy.
In the previous meeting held on 20th September 2021, the MPC raised the policy rate by 25 basis points to 7.25 percent as the committee noted that the pace of the economic recovery has exceeded expectations. The MPC also noted that robust recovery in domestic demand coupled with higher international commodity prices is leading to a strong pick-up in imports and a rise in the current account deficit and hence decided to increase the policy rate after a gap of one year.
SBP prepones monetary policy announcement, will now hold it on November 19
There are a number of developments on the economic front in recent weeks that forced the committee to reschedule its meeting.
Inflation in October 2021 comes at 9.2 percent compared to 9.0 percent of September 2021. Food inflation in Oct-21 stood at 8.3 percent YoY. Cumulatively, CPI inflation rate in 4MFY22 (Jul-Oct21) averaged at 8.74 percent versus 8.87 percent in the same period last year.
Although inflows of workers’ remittances continued to increase and with 12 percent growth, reached $10.6 billion mark during the first four months of this fiscal year. However, the current account deficit rose sharply to $3 billion in Jul-Sep of FY22 compared to $850 million in the same period last fiscal year.
The country’s exchange rate is also deteriorating for the last two months rising to Rs174 against the greenback. The ongoing developments and uncertainty have compelled the MPC to convene a meeting before the announced schedule to take some appropriate steps to address these challenges.
Samiullah Tariq, an economist, expects that the SBP wants to calm markets and revive investor confidence. “Our expectation is at least 100 bps increase in interest rates,” he added.
Tahir Abbas, the head of research at the Arif Habib Limited, said that the early announcement is to provide clarity as there is uncertainty causing panic across all the financial markets. Therefore, a hike of 75-100 bps is expected in the upcoming policy, he added.
While announcing the previous policy, the MPC expected that monetary policy would remain accommodative in near term with possible further gradual tapering of stimulus to achieve mildly positive real interest rates over time.
Copyright Business Recorder, 2021
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