Monetary policy: SBP jacks up interest rate by 150 bps to 8.75%

[FOOLS_NIGHTMARE]

In line with market expectations, the State Bank of Pakistan (SBP) on Friday announced an increase of 150 basis points in its benchmark policy rate in a bid to contain runaway inflation, which threatens to destabilise the economy.

The central bank had earlier brought forward its monetary policy review meeting in light of “recent unforeseen developments that have affected the outlook for inflation and the balance of payments.”

The central bank has said the decision to increase the interest rate to 8.75% has been taken because of risks related to inflation.

"With risks rotating from growth to inflation and the current account faster than expected, there is now a need to proceed faster to normalise monetary policy to counter inflation and preserve stability with growth," the statement said, adding that today’s rate increase is a material move in this direction.


In its forward guidance, the central bank said: "Looking ahead, the MPC re-iterated that the end goal of mildly positive real interest rates remains unchanged, and given today’s move, expects to take measured steps to that end."

The monetary policy committee at the central bank tightened interest rates keeping in view rising inflationary pressure due to rupee depreciation, a potential increase in utility tariffs and an upward trend in prices of petroleum products and essential food items in global markets.

During the day, the central bank also released current account data which posted a deficit of $1,663 million for the month of October 2021 compared to a surplus of $448 million in the same month of the last year.

Interest rates are used by the central bank as a tool to control inflation, regulate unnecessary movements in currency rates and give guidance to the national economy.

In its previous policy review, the central bank had increased the benchmark policy rate by 25 bps to 7.25%. Accordingly, the real interest rate (inflation reading subtracted from the benchmark interest rate) was recorded at negative 2%, as inflation reading came in at 9.2% in October.

In its pre-monetary policy commentary, Arif Habib Limited had stated that the SBP is expected to remain hawkish, raising its policy rate for the second time since the beginning of FY22 and at a much higher magnitude of 100bps — the highest hike in more than 2 years — taking the total cumulative increase in FY22 to date to 125 bps.

The brokerage house had predicted that a shift towards a more hawkish stance from am earlier “gradual and calibrated” one might be evident in this monetary policy meeting as inflation worries are rumbling more clearly than before.

Inflation in Pakistan has increased markedly with the resumption of economic activities but as supply-side inflation has subsided, demand-side inflation has overshot. Headline inflation initially remained low averaging at 8.7% during 4MFY22, but now, even with the base effect waning, it has started accelerating, raising concerns.

Monetary policy: SBP jacks up interest rate by 150 bps to 8.75%

KARACHI: In line with market expectations, the State Bank of Pakistan on Friday announced an increase of 150 basis points in its benchmark policy rate in a bid to contain runaway inflation, which threatens to destabilise the economy.The...

www.geo.tv

 

[maithil]

Demand compression tactics to fight supply side issues.

 

[imadul]

He is IMF hitman.
Destroying whatever recovery Pakistan made during the pandemic.
US Federal reserve rate is 0% - 0.25% since pandemic and this IMF hitman just slaughtering Pakistan economy by raising to 8.75%.
A dummy PM is just clueless.

 

[The Accountant]

Demand compression tactics to fight supply side issues.

Yes but no other solution in short term as supply side can be corrected in few years ... It needs atleast a decade to establish production capabilities ... For example the olive forrest being grown will start giving production on average 4 years time after which they will start substituting imports ..

 

[muhammadhafeezmalik]

Government of Pakistan will have to pay Rs.400 billion extra in debt servicing.
Increase in interest rate catastrophic: Miftah Ismail


Pakistan Muslim League-Nawaz (PMLN), Sindh, Secretary-General Miftah Ismail has termed the increase in interest rates as another noose around the country's industry.

Miftah and former finance minister said the rising interest rates will only reduce industrial production and increase inconsequential government spending. "One and a half percent interest rate hike will not have any impact on inflation, instead the private sector will face more difficulties and would slowdown," he said. "Increasing it from 7 to 9 percent would further increase the government's interest payments by Rs400 billion annually," he said in a statement.

“The PTI government had tried two years ago to control inflation and depreciation of the rupee with similar measures but because of that the economy fell further into recession," he pointed out. The Imran government has already reversed the country's economy by raising interest rates. Once again, interest rates are rising sharply, the economy was already super slow, it will slow down further, Miftah said.

Miftah questioned how could inflation, which is setting the country on fire, be brought under control by raising interest rates so fast. The current account deficit is set to reach an all-time high of $15 billion in October. It was virtually impossible to stop further devaluation of the rupee, especially when imports of $75 billion were inevitable, he said.

The former federal finance minister said the government should reduce its royal expenses. Cheap gas should be given to import and other sectors. Run the industry, so that there is maximum export and minimum import from the country. The government should reduce electricity tariffs to reduce inflation. Reducing petrol prices, giving relief to the people and economy, the red tape must be reduced. Pakistan's current inflation rate is not due to a reduction in interest rates but due to the government making things more expensive, especially electricity, gas, and petrol.

'Increase in interest rate catastrophic'

KARACHI: Pakistan Muslim League-Nawaz , Sindh, Secretary-General Miftah Ismail has termed the increase in interest rates as another noose around the country's industry.Miftah and former finance...

www.thenews.com.pk

 

[Indos]

Demand compression tactics to fight supply side issues.

Not as simple as you think. If they dont raise the interest rate, Rupee will fall more deeper against USD. It is to give more value to Rupee so businesses and rich people will not switch their Rupee into USD that will depreciate Rupee even more.

Rupee depreciation will also translate into huge inflation since Pakistan buys coal, oil, palm oil, manufacturing goods from Qatar, Indonesian, and China etc using USD, not to mention the increase container rate ( export-import) as well that is currently happening.

It is also to avoid possibility of financial crisis and curb the Gov spending in paying their debt ( which is in USD)

 

[blueazure]

Not as simple as you think. If they dont raise the interest rate, Rupee will fall more deeper against USD. It is to give more value to Rupee so businesses and rich people will not switch their Rupee into USD that will depreciate Rupee even more.

Rupee depreciation will also translate into huge inflation since Pakistan buys coal, oil, palm oil, manufacturing goods from Qatar, Indonesian, and China etc using USD, not to mention the increase container rate ( export-import) as well that is currently happening.

It is also to avoid possibility of financial crisis and curb the Gov spending in paying their debt ( which is in USD)

Turkish CB raised interest rate to almost 20 percent last year.

That didn't stop the lira from plunging .

It's now 10 lira to a dollar

 

[ARMalik]

Isn't it ironic that the ISLAMIC REPUBLICS OF PAKISTAN IS yet another SOOD KHOOR country. They should remove 'Islamic' from its name as it is certainly NOT Islamic, and is openly derogatory to true Islamic leaders of early Islam.

 

[FOOLS_NIGHTMARE]

FPCCI chief terms monetary tightening as ‘negative development’

The business community baulked at a 150 basis points (bps) hike in the policy rate, terming it a “negative development” that would further burden the industry.

The State Bank of Pakistan (SBP) jacked up the policy rate to 8.75% from 7.25% in a bid to thwart inflation and "balance of payment" risks.

Reacting to this higher-than-hoped monetary tightening, the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) termed it a “negative development” which would further burden the industry in the wake of high cost of business and prices of inputs.

“We were expecting the policy rate to rise, but not so much”, said Nasir Hayyat Maggo, President FPCCI, talking to The News.

“We were expecting a 50bps or maximum 75 bps hike; however, a raise of 150bps is too high for the businesses.”

Maggo said inflation in Pakistan was cost-push, which spiked due to surging prices of commodities in world markets as well as deprecation of the rupee against the dollar.

“The economy doesn’t have the capacity to absorb the high interest rate as it was already struggling with the weak exchange rate,” he pointed out.

Maggo agreed the move was made to meet the International Monetary Fund’s (IMF) terms and conditions, adding that the free hand given to the SBP was in fact making matters complicated for the country, as well as industry.

Ruling out the impression that high interest rate would dent credit off-take to industry, Maggo said in reality only large businesses were the beneficiaries of bank credits. “SMEs are still deprived of this facility and will remain so in the present situation,” said the FPCCI chief.

Asif Inam Rana, Chairman All Pakistan Textile Mills Association (APTMA) South Zone, described the rate hike as huge.

He, however, added that the step had been taken to stabilise the currency situation in the country.

“Economy is already red-hot as all sectors are performing exceptionally well and would not be adversely impacted by the latest development,” said Rana said explaining the impact of this monetary tightening on the economy.

He said the hike was apparently aimed at cooling off the red-hot economy.

“Exporting industry is already enjoying the export refinance facility and is unlikely to suffer from an interest rate hike.”

The interest rate hike would impact consumer financing especially auto-financing as well as reduce the hoarding of commodities as a high interest rate would make borrowing costlier for hoarders, Rana said.

FPCCI’s Maggo, however, didn’t subscribe to the view that the economy was red-hot and a rate hike would allow it to cool off.

FPCCI chief terms monetary tightening as ‘negative development’

FPCCI chief says economy doesn’t have capacity to absorb high interest rates.We were expecting the policy rate to rise, but not so much”, says President FPCCI Nasir Hayyat Maggo. APTMA official says hike was apparently...

www.geo.tv

 

[bafxet]

FPCCI chief terms monetary tightening as ‘negative development’

The business community baulked at a 150 basis points (bps) hike in the policy rate, terming it a “negative development” that would further burden the industry.

The State Bank of Pakistan (SBP) jacked up the policy rate to 8.75% from 7.25% in a bid to thwart inflation and "balance of payment" risks.

Reacting to this higher-than-hoped monetary tightening, the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) termed it a “negative development” which would further burden the industry in the wake of high cost of business and prices of inputs.

“We were expecting the policy rate to rise, but not so much”, said Nasir Hayyat Maggo, President FPCCI, talking to The News.

“We were expecting a 50bps or maximum 75 bps hike; however, a raise of 150bps is too high for the businesses.”

Maggo said inflation in Pakistan was cost-push, which spiked due to surging prices of commodities in world markets as well as deprecation of the rupee against the dollar.

“The economy doesn’t have the capacity to absorb the high interest rate as it was already struggling with the weak exchange rate,” he pointed out.

Maggo agreed the move was made to meet the International Monetary Fund’s (IMF) terms and conditions, adding that the free hand given to the SBP was in fact making matters complicated for the country, as well as industry.

Ruling out the impression that high interest rate would dent credit off-take to industry, Maggo said in reality only large businesses were the beneficiaries of bank credits. “SMEs are still deprived of this facility and will remain so in the present situation,” said the FPCCI chief.

Asif Inam Rana, Chairman All Pakistan Textile Mills Association (APTMA) South Zone, described the rate hike as huge.

He, however, added that the step had been taken to stabilise the currency situation in the country.

“Economy is already red-hot as all sectors are performing exceptionally well and would not be adversely impacted by the latest development,” said Rana said explaining the impact of this monetary tightening on the economy.

He said the hike was apparently aimed at cooling off the red-hot economy.

“Exporting industry is already enjoying the export refinance facility and is unlikely to suffer from an interest rate hike.”

The interest rate hike would impact consumer financing especially auto-financing as well as reduce the hoarding of commodities as a high interest rate would make borrowing costlier for hoarders, Rana said.

FPCCI’s Maggo, however, didn’t subscribe to the view that the economy was red-hot and a rate hike would allow it to cool off.

FPCCI chief terms monetary tightening as ‘negative development’

FPCCI chief says economy doesn’t have capacity to absorb high interest rates.We were expecting the policy rate to rise, but not so much”, says President FPCCI Nasir Hayyat Maggo. APTMA official says hike was apparently...

www.geo.tv

It is bad but not doing would have been worst. The problem start when GoP started to cut loss the import allowing import of every bull shit. Even in presence of local manufacturing they allowed import of cars.

 

[ACE OF HEARTS]

It should be 15 % and should have been done yesterday
The more they wait, the more harm they are causing the economy and Pakistan.

 

[AZ1]

It should be 15 % and should have been done yesterday
The more they wait, the more harm they are causing the economy and Pakistan.

then ppl will stop investing in property and will keep their money in banks

 

[Enigma SIG]

Suddenly everyone is a Central Bank Governor, patwaris more so