KARACHI: The State Bank of Pakistan (SBP) has decided to convene an emergency meeting of the Monetary Policy Committee (MPC) during this week to deal with the emerging risks to the economy due to uncertain developments.
Sources told Business Recorder on Monday that most probably the meeting of MPC will be held on March 2, 2023 instead of March 16, 2023 to review the key economic indicator and take a decision on interest rate.
“Multiple and unexpected developments on the economic front have forced the SBP to call the MPC meeting coming Thursday,” they added.
Chief Spokesman Abid Qamar has not confirmed the exact date; however, he said there is possibility of an MPC meeting during this week. “So far we can’t confirm any date because there is a process that needs to be completed for the meeting,” he added.
Next MPC meeting so far scheduled on March 16, says SBP
In the previous meeting held on January 23, 2023, the committee increased the policy rate by 100 basis points to 17 percent as the inflationary pressures were persisting and continue to be broad-based.
The next MPC meeting was scheduled on March 16, 2023, however heightened policy uncertainty, market was anticipating an emergency monetary policy meeting before schedule, ie, on March 16, 2023 and now, the MPC meeting is going to be held on March 2, 2023.
Since the last monetary policy meeting, there have been a number of developments on the economic front. On the IMF demand, the federal government has taken some measures to enhance the revenue collection. The government has not only increased the rate of petroleum products and gas tariff but also raised the sales tax rate by 1 percent, ie, from 17 percent to 18 percent.
These steps have raised risks to the inflation outlook. As per the market expectations, inflation continues to make new highs and is expected to clock in at 30.5 percent YoY in Feb 23 compared to 12.2 percent in Feb 22 and 27.5 percent in preceding month.
The increase in inflation is led by increase in food and transport index due to upward revision of petroleum products. Overall, in the first eight months of this fiscal year inflation is likely to be 26 percent against 10.5 percent in the same period of last fiscal year.
Sources said despite these measures IMF’s long pending staff level agreement for the 9th review of Extended Fund Facility (EFF) is still pending and the Fund is demanding further monetary tightening to control the inflation.
Cut- off yields of Market Treasury Bills (MTBs) have already risen to 19.95 percent in the previous auction and yields in all three tenors are at their historic high levels since Jun’98.
On the back of these developments, the market is also expecting some 200-300 basis points increase in the key policy rate in the next MPC meeting to be held on Thursday. The committee has already mentioned in the previous policy statement that anchoring of inflation expectations is important to achieve the medium term inflation target of 5-7 percent by December 2024 and requires coordinated monetary and fiscal policy efforts.
Copyright Business Recorder, 2023