Pakistan raises rate 3rd time, expects to maintain rates

     Pakistan's central bank raised its monetary policy rate for the third time but said it now "expects monetary policy settings to remain broadly unchanged in the near-term" as its goal of "mildly positive interest rates on a forward-looking basis was now close to being achieved." 
     The State Bank of Pakistan's (SBP) monetary policy committee (MPC) raised its policy rate by 100 basis points to 9.75 percent and has now raised it 2.75 percentage points following rate hikes in September, November and today.
     SBP said the goal of today's rate hike was to "counter inflationary pressures and ensure that growth remains sustainable," adding economic data since the last policy decision had remained robust while inflation and the trade had risen further due to high global prices and domestic economic growth.
     "The MPC noted that recent data releases confirm that the emphasis of monetary policy on moderating inflation and the current account deficit remains appropriate," SBP said.
     Pakistan's inflation rate rose to 11.5 percent in November from 9.2 percent in October and SBP raised its forecast for inflation to average 9-11 percent in the current 2022 fiscal year, which began July 1, from the November forecast of 7-9 percent.
     However, SBP expects inflation to decline toward its medium-term target range of 5-7 percent in fiscal 2023 as global commodity prices retrench, administered price increases dissipate and the impact of demand-moderating policies materialize.
     The rise in global commodity prices has significantly boosted the cost of imports, widening Pakistan's trade deficit to US$5 billion and the current account deficit, which it now expects to reach around 4 percent of gross domestic product, higher than earlier projected.
     And while the twin deficits are likely to remain high in coming months, they are expected to gradually narrow in the second half of fiscal 2022 and the MPC expects the current account deficit to be fully financed from external flows.
    "As a result, foreign exchange reserves should remain at adequate levels through the rest of the fiscal year and resume their growth trajectory as global commodity prices ease and import demand moderates," SBP said, 
     Pakistan's economy grew 3.94 percent in the 2021 fiscal year, up from a contraction of 0.47 percent in the previous year and the central bank said high-frequency data showed economic growth remained robust while the outlook for agriculture remains robust and sales tax on services was robust.
      SPB forecast growth in this fiscal year would be close to the upper end of the forecast range of 4-5 percent and while the emergence of the new COVID-19 variant, Omicron poses some concern, it added there is limited information about its severity at this stage.
     "The MPC noted that Pakistan had successfully coped with multiple waves of the virus, which supported a positive outlook for the economy."

Pakistan raises rate 2nd time, boosts tightening pace

     Pakistan's central bank raised its monetary policy rate for the second time, saying it "was of the view that there is now a need to proceed faster to normalize monetary policy to counter inflationary pressures and preserve stability with growth."
     The State Bank of Pakistan's (SBP) monetary policy committee (MPC) added "today's rate increase is a material move in this direction" and it expects the decision to help achieve its goal of mildly positive real interest rates amid a continued improvement in the outlook for economic growth.
     SBP raised its policy rate by 1.50 percentage points to 8.75 percent and has now raised it 1.75 percentage points following a rate hike in September, the bank's first rate increase since June 2018.
     Today's policy decision was brought forward from the previously scheduled date of Nov. 26 as the central bank said it wanted to reduce uncertainty about its monetary settings in light of what it said was "unforeseen developments that have affect the outlook for inflation and the balance of payments."
     "The heightened risks related to inflation and balance of payments stem from both global and domestic factors," SBP said, with price pressures from COVID-19-induced disruptions to supply chains and higher energy prices proving to be longer-lasting than previously anticipated.
     In Pakistan, high import prices is contributing to higher-than-expected inflation while there are also emerging signs of demand-side pressures on inflation and inflation expectations of businesses have risen.
     Pakistan's headline inflation rate rose to 9.2 percent in October from 8.98 percent in September while wholesale price inflation rose to 21.2 percent from 19.6 percent, the steepest rise since June 2011.
    "Looking ahead, global commodity prices and potential further upward adjustments in administered prices of energy pose upside risks to the average inflation forecast of 7-9 percent in FY22," SBP said.
      Reflecting the combination of higher import costs for both oil and commodities along with buoyant domestic demand, Pakistan's current account deficit has widened and SBP said the burden of adjusting to these pressures has largely fallen on the rupee.
    Pakistan's current account deficit rose to US$3.4 billion in the third quarter from $2.48 in the second quarter and the exchange rate of the rupee has been hitting new record lows this month and was trading at 175.0 to the U.S. dollar today, slightly up from around 175.7 last week, to be down 6.5 percent this year. 

     SBP said the current account deficit for the 2022 fiscal year, which began July 1, is expected to modestly exceed its previous forecast of 2-3 percent of gross domestic product.
     "As a result of these developments, the balance of risks has shifted away from growth and toward inflation and the current account faster than expected," SBP said, adding there was now a need to proceed faster to normalize monetary policy to counter inflationary pressure and preserve stability.

     In response to last year's outbreak of the COVID-19 pandemic, SBP cut its policy rate 5 times and by a total of 6.25 percentage points from March to June, 2020. 
     Prior to the pandemic, SBP had been in a monetary tightening cycle and raised the rate 7 times and by a total of 7.25 percentage point from May 2018 to July 2019 to ensure inflation remained within its medium-term target range of 5.0 to 7.0 percent.

     The recovery of Pakistan's economy is continuing, the central bank said, and overall the recovery "appears increasingly durable and self-sustaining, against the backdrop of rapidly falling Covid cases and the government's vigorous vaccination roll-out."

     Pakistan's economy grew 3.95 percent in the 2020/21 fiscal year and the central bank said the risks to the growth forecast for this fiscal year of 4-5 percent were tilted to the upside due to an improved outlook for agriculture.

Pakistan raises rate as recovery tops expectations

     Pakistan's central bank raised it monetary policy rate for the first time in more than two years - the 10th emerging market central bank to raise rates this year - as the pace of the economic recovery has exceeded expectations and this could lead to a rise in inflation in coming months.

     The State Bank of Pakistan (SBP) raised its policy rate by 25 basis points to 7.25 percent, the first rate hike since July 2019 and the highest policy rate since June 2018.
     As other central banks, SBP last year lowered its interest rates in response to the COVID-19 pandemic and cut it 5 times and by a total of 6.25 percentage points from March to June. 

     Since then it kept the rate steady as economic activity slowly improved, with the recovery picking up speed during the summer despite a fourth wave of the pandemic.
     Although the rate hike surprised many analysts that expected SBP to keep the rate steady today, the central bank in late July already said it would be prudent to begin normalizing its monetary policy stance through a gradual degree in accommodation to ensure inflation doesn't become entrenched at a high level.

     "Looking ahead, in the absence of unforeseen circumstances, the MPC (the monetary policy committee) expects monetary policy to remain accommodative in the near term, with possible further gradual tapering of stimulus to achieve mildly positive real interest rates over time," SBP said. 

     The pace of further tapering of stimulus would depend on continued strength of demand and fiscal policy, among other factors, the bank added.   

     Prior to the pandemic, SBP had been in a monetary tightening cycle and raised its rate 7 times and by a total of 7.25 percentage points from May 2018 to July 2019, to ensure inflation remained within its target range.
      Despite the faster-than-expected economic recovery, inflation has been kept in check by declining food prices and headline inflation eased to 8.4 percent in both July and August from around 11 percent in both April and May.

    "While year-on-year inflation has declined since June, rising demand pressures together with higher imported inflation could begin to manifest in inflation readings later in the fiscal year," the bank said.

     With continued progress in vaccinations and signs the latest COVID wave remains contained, the central bank said the economic recovery appears less vulnerable to pandemic-related uncertainty so monetary policy should gradually pivot from catalyzing a economic recovery to sustaining it.

     Although inflation has been steady in the last two months, SBP said inflation expectations of both households and businesses had drifted up and wage growth was picking up, with the outlook for inflation largely dependent on demand, administered prices along with fuel, electricity and global commodity prices.

     In July SBP expected inflation to ease in the second half of this year and then coverage to its target range of 5 - 7 percent in the medium term.

     Pakistan's economy in fiscal 2022, which began on July 1, is expected to expanded toward the upper end of SBP's forecast range of 4 - 5 percent, notwithstanding some of the uncertainty with respect to a spillover from Afghanistan.

UPDATED-This week in monetary policy: Romania, Armenia, Georgia, Mozambique, USA, Brazil, Costa Rica, Indonesia, Taiwan, Norway, Turkey, UK, Egypt, Japan, Russia, Pakistan & Azerbaijan

    (Following item is update with the State Bank of Pakistan which said on March 16 its monetary policy committee would meet on March 19 to decide monetary policy and issue a press release that day.)

     This week - March 15 through March 20 - central banks from 17 countries or jurisdictions are scheduled to decide on monetary policy: Romania, Armenia, Georgia, Mozambique, United States, Brazil, Costa Rica, Indonesia, Taiwan, Norway, Turkey, UK, Egypt, Japan, Russia, Pakistan and Azerbaijan.

    Following table includes the name of the country, the date of the next policy decision, the current policy rate, the local time a policy decision is announced, the result of the last policy decision, the change in the policy rate year to date, and the rate one year ago.
    The table is updated when the latest decisions are announced and can always be accessed by clicking on This Week.

WEEK 11
MAR 15 - MAR 20, 2021:
ROMANIA	15-Mar	1.25%		0	0	2.00%
ARMENIA	16-Mar	5.50%		0	25	5.25%
GEORGIA	17-Mar	8.50%		50	50	9.00%
MOZAMBIQUE	17-Mar	13.25%	16:00	0	300	12.75%
UNITED STATES	17-Mar	0.25%	14:00	0	0	0.25%	DM
BRAZIL	17-Mar	2.00%	18:30	0	0	3.75	EM
COSTA RICA	17-Mar	0.75%		0	0	1.25%
INDONESIA	18-Mar	3.50%		-25	-25	4.50%	EM
TAIWAN	18-Mar	1.125%		0	0	1.125%	EM
NORWAY	18-Mar	0.00%	10:00	0	0	0.25%	DM
TURKEY	18-Mar	17.00%	14:00	0	0	9.75%	EM
UNITED KINGDOM	18-Mar	0.10%	12:00	0	0	0.10%	DM
EGYPT	18-Mar	8.25%		0	0	9.25%	EM
JAPAN	19-Mar	-0.10%		0	0	-0.10%	DM
RUSSIA	19-Mar	4.25%	13:30	0	0	6.00%	EM
PAKISTAN	19-Mar	7.00%		0	0	11.00%	EM
AZERBAIJAN	19-Mar	6.25%		0	0	7.25%

 
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Pakistan holds rate, begins to look to positive real rates

      Pakistan's central bank kept its key interest rate steady for the third time but said the domestic economic recovery had gained further traction and while its rate will remain unchanged "in the near term" it is starting to look toward reaching "mildly positive real interest rates" as the economic recovery becomes more durable and the economy returns to full capacity.

     The State Bank of Pakistan (SBP) left its monetary policy rate at 7.0 percent, unchanged since it was last cut in June 2020. 

     "Most economic activity data and indicators of consumer and business sentiment have show continued improvement," SBP said, adding there were now upside risks to its current forecast for growth in fiscal 2021, which began July 1 last year.

      As other central banks, SBP began easing its monetary policy stance sharply in March last year in response to the COVID-19 pandemic and cut it 5 times by a total 625 basis points from March to June.

     Prior to the COVID-19 crises, SBP had been on a tightening path, raising the rate 7 times and by a total of 725 basis points from May 2018 to July 2019.

     "With the inflation outlook relatively benign aside from the possibility of temporary supply-side shocks, the MPC felt that the existing accommodative stance of monetary policy remained appropriate to support the nascent recovery while keeping inflation expectations well-anchored and maintaining financial stability," SBP said.

     After contracting sharply from March to June last year, Pakistan's large-scale manufacturing sector returned to expansion in July and SBP said this recovery had strengthened in recent months, with LSM output up 7.4 percent year-on-year in October and 14.5 percent in November.

     So far in the current fiscal year, LSM has grown an annual 7.4 percent compared with a contraction of 5.3 percent in the same period last year. However, the level of manufacturing activity is still below average levels seen in FY19, pointing to continued spare capacity in the economy.

     Pakistan's inflation rate eased to 8.0 percent in December from 8.35 percent in November and SBP confirmed it still expects inflation to fall within its expected range of 7-9 percent for FY21 and trend toward its 5-7 percent target range over the medium term.

      Although utility tariff increases may cause an uptick in inflation, SBP said this was likely transient given the excess capacity in the economy and well-anchored inflation expectations.

      But amid the favorable outlook, the central bank stressed the trajectory of COVID-19 is difficult to predict given the still-elevated global cases, the emergence of new strains and uncertainties about the roll-out of vaccines worldwide.

      "In light of such Covid-related uncertainties, the MPC considered its appropriate to provide some forward guidance on monetary policy to facilitate policy predictability and decisions-making by economic agents," the bank's monetary policy committee said.

      Most major central banks, such as the U.S. Federal Reserve and the Bank of Japan, use forward guidance to signal the expected path of interest rates to help guide the financial decisions by businesses, households and financial markets. 

      Forward guidance was first used during the Global Financial Crises to calm financial markets and investors and has increasingly been adopted by central banks worldwide as part of their tool kit.

      It appears to be the first time Pakistan's central bank has adopted forward guidance.

     "In the absence of unforeseen developments, the MPC expects monetary policy settings to remain unchanged in the near term. As the recovery becomes more durable and the economy returns to full capacity, the MPC expects any adjustments in the policy rate to be measured and gradual to achieve mildly positive real interest rates," SBP said.

UPDATE-This week in monetary policy: Sri Lanka, China, Malaysia, Canada, Brazil, Japan, Indonesia, Norway, Turkey, Ukraine, Uzbekistan, ECB, South Africa, Paraguay and Pakistan

    (UPDATE- Following item updated with Pakistan after the State Bank of Pakistan on Jan. 19 announced its monetary policy committee would meet on Friday, Jan. 22 to decide on monetary policy. The bank's governor will also give a press conference the same day.)
     

     This week - January 18 through January 23 - central banks from 15 countries or jurisdictions are scheduled to decide on monetary policy: Sri Lanka, China, Malaysia, Canada, Brazil, Japan, Indonesia, Norway, Turkey, Ukraine, Uzbekistan, the euro area, South Africa, Paraguay and Pakistan.

     Following table includes the name of the country, the date of the next policy decision, the current policy rate, the local time a policy decision is announced, the result of the last policy decision, the change in the policy rate year to date, and the rate one year ago.
    The table is updated when the latest decisions are announced and can always be accessed by clicking on This Week.

WEEK 3
JAN 18 - JAN 23, 2020:
SRI LANKA	19-Jan	4.50%	7:30	0	0	6.50%	FM
CHINA	20-Jan	3.85%		0	0	4.15%	EM
MALAYSIA	20-Jan	1.75%		0	0	2.75%	EM
CANADA	20-Jan	0.25%	10:00	0	0	1.75%	DM
BRAZIL	20-Jan	2.00%	18:30	0	0	4.50%	EM
JAPAN	21-Jan	-0.10%		0	0	-0.10%	DM
INDONESIA	21-Jan	3.75%		0	0	5.00%	EM
NORWAY	21-Jan	0.00%	10:00	0	0	1.50%	DM
TURKEY	21-Jan	17.00%	14:00	0	0	11.25%	EM
UKRAINE	21-Jan	6.00%		0	0	11.00%	FM
UZBEKISTAN	21-Jan	14.00%	14:30	0	0	16.00%
EURO AREA	21-Jan	0.00%	13:45	0	0	0.00%	DM
SOUTH AFRICA	21-Jan	3.50%		0	0	6.25%	EM
PARAGUAY	21-Jan	0.75%		0	0	4.00%
PAKISTAN	22-Jan	7.00%		0	0	13.25%	EM

 

 

    www.CentralBankNews.info

Pakistan pauses after 5 rate cuts, stance appropriate

     Pakistan's central bank left its key interest rate steady after five cuts earlier in the year, saying the current monetary policy stance remains "appropriate to provide needed support to the emerging recovery, while keeping inflation expectations well-anchored and maintaining financial stability."

     The State Bank of Pakistan (SBP) left its policy rate at 7.0 percent after cutting it five times this year by 625 basis points.

     The bank's monetary policy committee said business confidence and the outlook for growth had improved since its last meeting in June, reflecting the decline in COVID-19 cases, the easing of lockdowns along with the stimulus provided by the government and itself.

     SBP normally decides on monetary policy every two months but scrapped its July meeting in light of the extraordinary meetings this year, including one in April, in response to the spread of the pandemic, and because it considered the policy stance appropriate.

     SBP said today's decision, which was expected, comes as its forecast for inflation has risen slightly due to recent supply shocks to food prices and it now expects inflation to average within its previously announced range of 7.0 to 9.0 percent for fiscal 2020/21, which began July 1, rather than below.

     Pakistan's inflation rate eased to 8.2 percent in August from 9.26 percent in July but SBP said core inflation had been relatively stable and demand-side risks to inflation well contained.

     Financial conditions remain accommodative and the bank's measures since the outbreak of the virus have injected an estimated stimulus of 1.58 trillion rupees, or about 3.8 percent of gross domestic product, to the cash flow of businesses and households.

     After a deep economic contraction between March and June, SBP said the large-scale manufacturing index had returned to expansion in July, growing 5 percent year-on-year, but the economic recovery still remains uneven across industries, with hospitality especially lagging, and the general level of activity still below pre-Coronavirus levels.

     Going forward, SBP expects economic growth of slightly above 2 percent in FY21 after contracting 0.4 percent last year, with the recovery mainly driven by manufacturing-related activities and construction, which are supporting by both the central bank and the government's incentives.

     Despite the challenging environment, SBP said the external sector had remained resilient since the COVID-19 outbreak, with the flexible market-determined exchange rate helping absorb shocks while low global oil prices and subdued domestic demand helped narrow the current account deficit.

     A gradual recovery of exports is expected and remittances have been strong, rising to a monthly high in July and topped US$2 billion for the last three months.

     This has helped SBP's foreign exchange reserves rebound to pre-pandemic levels of around US$12.8 billion and now back above the benchmark of 3 months of import cover.

     Pakistan's rupee has been relatively stable this month after falling sharply in March, as most other currencies, and was trading at 166.0 to the U.S. dollar today, down 6.7 percent this year.

Pakistan cuts rate 5th time on improving inflation outlook

      Pakistan's central bank cut its key interest rate for the fifth time this year and for the third month in a row, saying this decision reflects a further improvement in the outlook for inflation while the slowdown of the country's economy continues and downside risks to growth have risen.
     The State Bank of Pakistan (SBP) cut its policy rate by another 100 basis points to 7.0 percent and has now cut it by 625 points this year following previous cuts in March, April and May.
      Noting its mandate to support households and businesses through the Covid-19 pandemic and to minimize the damage to the economy, SBP's monetary policy committee said after a surprise meeting that from a risk management point of view "a prompt response to downside risks to growth was called for given the improved inflation outlook."
      The central bank added that some 3.3 trillion rupees of loans were due to be repriced by early July, making this an opportune moment to take action as the benefits of interest rate reductions would be passed on to households and businesses in a timely manner.
      Pakistan's inflation rate eased to 8.22 percent in May from 8.5 percent in April and 14.6 percent in January due to the government's cut in diesel and petrol prices and SBP said data shows this moderation was continuing in June despite a rise in some food prices, such as wheat.
      While supply shocks could trigger some volatility in inflation, SBP said this was likely to be transitory given the weak demand and given the absence of any demand-side pressures, average inflation could fall below the previously expected range of 7-9 percent in fiscal 2020/21, which begins July 1.
      In May SBP also forecast inflation for the current fiscal year to be close to the low end of its expected range of 11-12 percent.
     "With the current reduction in the policy rate to 7 percent, the MPC felt that real rates on a forward-looking basis (defined as the policy rate less expected inflation) would be kept close to zero, which is appropriate under the current circumstances," SBP said.
     High-frequency data, such as cement dispatches, automobile sales, food and textile exports, and petroleum sales were continuing to contract in April though the rate was lower than in the previous two months and looking ahead SBP expects a gradual recovery in the fiscal 2021 although risks are still skewed to the downside and dependent on the evolution of the pandemic.
      Pakistan's rupee, which had stabilized in June last year after an agreement with the International Monetary Fund (IMF), fell sharply in March but then recovered in April. But since late May the rupee has again been falling and was trading at 167.4 to the U.S. dollar today, down 7.5 percent this year.
     SPB said the flexible exchange rate had played "its valuable shock absorber role," helping cushion the economy from any tightening of financial conditions from capital outflows and deteriorating global sentiment, adding the rupee's depreciation had been lower than in many other emerging markets, reflecting the increased reserve buffers accumulated over the last year.

Pakistan cuts rate 4th time on improved inflation outlook

     Pakistan's central bank cut its key interest rate for the fourth time this year in light of a further improvement in the outlook for inflation following the government's cut in fuel prices, which together  with a coordinated and broad-based policy response should provide support for economic recovery as the coronavirus pandemic subsides.
     The State Bank of Pakistan (SBP) cut its policy rate by 100 basis points to 8.0 percent and has now cut it 525 points this year following two cuts at emergency monetary policy committee meetings in  March and then one further cut in April.
     SBP noted the Covid-19 pandemic had created unique challenges for monetary policy due to its non-economic origin and the temporary disruption of economic activity required to combat it.
     And while monetary policy can neither affect the rate of infection transmission nor prevent the fall in economic activity due to lockdowns, it can provide liquidity to households and businesses to help them through the temporary economic disruption through rate cuts and cheap leans.
     These measures have also helped maintain credit flows, bolster the cash flow of borrowers and support asset prices, containing the tightening financial conditions that would otherwise have amplified the initial necessary contraction in activity, SBP said.
     The government's decision to cut petrol and diesel prices by 30-40 percent in response to the continued fall in global oil prices has improved the outlook for inflation, and SBP said it now expects inflation to fall close to the low end of its expected range of 11 to 12 percent for the current 2019/20 fiscal year, which ends July 1, and then to between 7 and 9 percent in 2020/21.
     Inflation in Pakistan fell to 9.5 percent in April from 10.7 percent in March.
     SBP said earlier volatility in domestic financial markets and foreign exchange markets had subsided in recent weeks despite a "considerable" tightening of global financial conditions but this had helped restore its foreign reserves to close to a pre-coronavirus level of over $US 12 billion.

Pakistan cuts rate 3rd time to cushion hit from virus

     Pakistan's central bank lowered its policy rate for the third time within a month, saying this should cushion the impact of the Coronavirus shock on growth and employment by easing borrowing costs and the cost of servicing debt by households and firms, helping ensure the economy is better placed to recover when the pandemic subsides.
      The State Bank of Pakistan (SBP) cut its policy rate by a further 200 basis points to 9.0 percent and has now cut it by 425 points this year following cuts on March 17 and March 24.
     As on March 24, today's rate cut was decided by at an emergency meeting by the bank's monetary policy committee.
      SBP is the fifth central bank to cut its rate at an unscheduled policy meeting this week, boosting this year's emergency rate cuts by central banks worldwide to 63.
     On March 24 the policy committee said it remained ready to take further action in response to the evolving impact of the virus and since the global and domestic economy outlook has deteriorated.
     SBP noted the International Monetary Fund's projection of a 3 percent contraction in the world economy this year, much deeper than during the global financial crises.
      "Moreover, there are severe risks of a worse outcome," SBP said, adding its forward looking real interest rates are now around zero, about the middle of the range across most emerging markets.
      High-frequency domestic data - including retail sales, credit. card spending, cement production, export orders, tax collections and mobility data - suggest a significant slowdown in most parts of the country's economy in recent weeks, SBP said.
      While there is still high uncertainty about the severity and duration of the economic shock from the virus, SBP revised down its forecast for economic growth in the current fiscal year, which ends July 1, to a contraction of 1.5 percent before a recovery to growth around 2 percent in 2020/21.
      With oil prices plummeting and demand weak, inflation is expected to be closer to the lower end of SBP's earlier estimate of 11-12 percent for 2019/20, and then fall to 7-9 percent in 2020/21.
      Last week SBP proposed establishing a new executive board as part of upcoming amendments to the central bank law, giving in wide management and administrative powers, including the setting of monetary and exchange rate policy.
    SBP proposed the board should comprise the governor, deputy governor and non-executive members with terms of 5 years, that can be extended by another 5 years. This board would meet once a week.

Pakistan cuts rate 2nd time in a week as demand hit

     Pakistan's central bank lowered its policy rate for the second time in a week as the number people infected by the coronavirus has risen considerably, prompting social distancing and reduced activity, which it said was expected to lead to a "noticeable" slowdown in domestic demand.
      The State Bank of Pakistan (SBP) cut its key rate by a further 150 basis points to 11.0 percent, bringing the total easing since the cut on March 17 to 225 points.
     "The MPC was of the view that this cumulative easing would cushion the growth slowdown while protecting inflation expectations," SBP said, referring to the decision by its monetary policy committee at an emergency meeting.
      This month's rate cuts come after the central bank paused in its tightening campaign in July 2019 following 9 rate hikes to curb inflation from a fall in its rupee.
      Since July last year SBP had kept its rate steady until the spread of the virus began to affect demand and it cut the rate by 75 basis points on March 17. At that point, SBP said it was ready to take further action when more information became available.
       Overt the last week, the spread of the virus, Covid-19, has caused major disruptions to the global economy and trade, with the International Monetary Fund slashing its 2020 growth forecast to below zero from 3.3 percent.
       This implies the outlook for growth and inflation is likely to be revised down further, SBP said, adding it "remains ready to take whatever further actions become necessary in response to the evolving economic impact of the Coronavirus."
       SBP said it would soon announce further regulatory measures with banks to address the pressure on borrowers' cash flows from disruptions by making deferment and loan restructuring easier.

Pakistan holds rate 3rd time on steady inflation outlook

     Pakistan's central bank left its policy rate steady at 13.25 percent, as expected, saying it considers "the current monetary policy stance as appropriate to bring inflation down to the medium-term target range of 5-7 percent over the next six to eight quarters."
     It is the third time in a row the State Bank of Pakistan (SBP) has maintained its rate after raising it 9 times and by a total of 7.50 percentage points from January 2018 until July 2019 when it changed tack and said it was finished raising rates in response to the fall in the rupee.
     Since then SBP has linked its policy stance to the outlook for inflation and said today its outlook was largely unchanged since its last monetary policy meeting in November and on balance it still sees average inflation at 11-12 percent for fiscal 2020, which began July 1, 2019, up from an average of 7.3 percent in fiscal 2019.
      Pakistan's inflation rate rose to what SBP described as "the higher side" of 12.42 percent in December from 12.3 percent in November reflecting sharp rises in some food items due to temporary supply disruptions and increases in administered prices.
     "If sustained, high food price inflation could lead to demands for faster wage growth and to possible risks of a wage-price inflation spiral," SBP said, adding such second-round effects have not materialized so far so it considers the latest rise in inflation transitory and inflation expectations remain broadly anchored.
     In addition, the recent rise in the Pakistani rupee after the introduction of the market-based exchange rate and the ongoing fiscal consolidation should gradually the upward pressure on inflation.
     Supported by a 75 percent contraction in the current account deficit to US$ 2.15 billion in the first half of fiscal 2020 due to lower imports and higher exports, SBP boosted its foreign exchange reserves to $11.73 billion as of Jan. 17 from $7.28 billion at the end of June 2019 while it said recent portfolio inflows "reflected international investors improved perceptions of Pakistan's credit worthiness."
    "Such inflows reduce the interest rate on government debt due to the greater demand for government securities, deepen capital markets and free up domestic banks' resources for lending to the private sector," SBP added.
     Prior to an agreement with the International Monetary Fund (IMF) in May 2019, Pakistan had followed a "strong rupee" exchange rate policy, effectively pegging it to the U.S. dollar at a rate that was too high, forcing SPB to burn through reserves to defend it.
      After the deal with the IMF, which included a $6.0 billion support package and $38 billion from international partners, the rupee slowly stabilized and has been moving higher since August 2019.
      Today the rupee was trading at 154.6 to the U.S. dollar, marginally higher than 154.8 at the start of the year but up 4 percent since August 2019. Compared with December 2017, the rupee has depreciated some 30 percent.

Pakistan keeps rate for 2nd time as inflation seen easing

    Pakistan's central bank left its policy rate steady for the second time, saying the current monetary policy stance was appropriate to bring inflation down to its target range as the recent uptick in inflation was temporary, the currency had risen and domestic demand was still soft.
     The State Bank of Pakistan (SBP), which raised rates nine times between January 2018 and July 2019, said its projection for average inflation in FY20, which began on July 1, was broadly unchanged at 11 to 12 percent, up from an average of 7.3 percent in fiscal 2019.
     Pakistan's consumer prices rose a higher-than-expected 1.8 percent in October from September but on an annual basis, inflation eased to 11.08 percent in October from 12.55 percent in September, and SBP said the rise largely reflected higher administered prices and a rise in food prices.
      If the rise in prices were sustained, the central bank said this could affect inflation expectations but it expects inflationary pressures to recede in the second half of the fiscal year and expects inflation to decline to its target range of 5 - 7 percent over the next 24 months.
     After raising its rate by a total of 7.50 percentage points from January 2018 to curb rising inflation from a plunging rupee, SBP said in July that it was finished raising rates in response to the fall in the rupee and from now on interest rates would be set in response to the outlook for inflation.
     Following an agreement with the International Monetary Fund (IMF) in May, which included a $6.0 billion support package and $38 billion from international partners, the rupee has steadied and trended upward since late July and was trading at 155.3 to the U.S dollar today, up 3.3 percent since August 1 but still down 10 percent since the start of this year.
     Prior to the IMF deal, which included the introduction of a market-based exchange rate system, Pakistan followed a "strong rupee" exchange rate policy and effectively fixed it against the U.S. dollar at a rate that was too high, forcing SBP to burn through reserves to defend it.
    Since the SBP's previous monetary policy meeting in September, it noted three key developments: A current account surplus in October, an estimated surplus in the government's primary balance in the first quarter of fiscal 2020, and expectations by businesses for inflation to fall in the near term, suggesting that inflation expectations remain anchored.
     SBP also said recent economic data suggests that economic activity was strengthening in the export oriented and import-competing sectors while inward oriented sectors still see a slowdown.
     It retained its forecast for GDP growth in FY20 of around 3.5 percent, up from 3.3 percent in FY19 but down from 5.2 percent in FY18.

Pakistan maintains rate, current stance to lower inflation

     Pakistan's central bank left its policy rate steady after nine rate hikes since January 2018, saying the current policy stance was appropriate to being inflation down to its target range of 5 -7 percent over the next two years.
     The State Bank of Pakistan (SBP), which has raised its rate by a total of 7.50 percentage points over the last 20 months, including 3.25 percentage points this year, added inflation had been largely as expected since its last monetary policy meeting in July and inflation projections for fiscal 2020 were largely unchanged.
      SBP's decision to keep its rate steady today comes after it said on July 16 that it was finished raising rates in response to the fall in the rupee over the last 18 months and from now on interest rates would be set in response to the outlook for inflation.
      Since late July the rupee has risen and volatility subsided after the introduction of a market-based exchange rate system that followed an agreement with the International Monetary Fund (IMF) in May, which included a US$6.0 billion support package and unlocked another $38 billion from international partners.
      After today's policy decision the rupee jumped 0.5 percent to 156.1 to the U.S. dollar and is up 3.1 percent since July 29. But compared with early December 2017, before the SBP began raising rates to defend the rupee, the rupee has lost one-third of its value.
      Prior to the IMF-deal - the country's 13th since 1988 - Pakistan had followed a "strong rupee" exchange rate policy and effectively fixed it against the U.S. dollar at a rate that was too high, with the result the central bank had burned through reserves to defend it.
      Pakistan's inflation rate rose to 11.63 percent in August from 10.3 percent in July, reflecting the pass-through of earlier exchange rate depreciation, higher utility and food prices.
      SBP confirmed its previous forecast for inflation to average 11 -12 percent in fiscal 2020, up from an average of 7.3 percent in 2018/19.
      Pakistan's economy has been slowing as expected but SBP confirmed its forecast for growth to average around 3.5 percent in fiscal 2020, which began on July 1, up from 3.3 percent in fiscal 2019.