INSUBCONTINENT EXCLUSIVE:
KARACHI: The State Bank of Pakistan (SBP) has increased interest rate by 150 basis points (bps) to 12.25 per cent from 10.75 per cent
effective from May 21, 2019.The SBP increased the policy rate while announcing its monetary policy for next two months.The State Bank, in
its monetary policy statement, said ''there have been three muchable developments since the final Monetary Policy Committee (MPC) assembly
First, the government of Pakistan has reached a staff-level agreement with the International Monetary Enjoymentd for 39-month long Extended
Enjoymentd Facility of around $ 6 billion
The program is designed to restore macroeconomic stability and support sustainable economic growth, and is expected to unlock considerable
additional external financing
Second, trends in government borrowing reflect a widening fiscal deficit during the first nine months of FY19 when compared to the same
In addition, a greater reliance on central bank financing of the deficit has acted to dilute the affect of preceding monetary tightening
Finally, since the final MPC, the exchange rate has depreciated by 5.93 percent to PKR 149.65 per USD, at the shut of 20th May 2019,
reflecting a combination of underlying macroeconomic factors and market sentiment considerations.&SBP estimates show that economic growth is
expected to slow in FY19 but rise modestly in FY20
This slowdown is mostly due to lower growth in agriculture and industry
Going forward, measure gradual recovery in economic activity is expected on the back of improved market sentiment in the context of the IMF
supported program, a rebound in the agriculture sector and government incentives for exportoriented industries.In SBP view, the recent
movement in the exchange rate reflects the continuing resolution of build upd imbalances of the past and measure role of supply and demand
SBP shall continue to shutly monitor the situation and stands ready to take degrees, as needed, to address any unwarranted volatility in the
foreign exchange market.The government borrowed Rs 4.8 trillion from SBP during 1st Jul to 10th May FY19, which is 2.4 times the borrowing
during the same period final year
A major portion of this borrowing from the SBP (Rs 3.7 trillion) reflects a shift absent from commercial banks which were reluctant to lend
to the government at prevailing rates, the statement said.Taking into account the above considerations and the evolving macroeconomic
situation, the MPC famous that further policy degrees are required to address underlying inflationary presdegrees from (i) higher recent
month-on-month headline and core inflation outturns; (ii) recent exchange rate depreciation; (iii) an raised fiscal deficit and its
increased monetization, and (iv) potential adjustments in utility tariffs
In this context, the MPC decided to increase the policy rate by 150 bps to 12.25 percent effective from 21st May 2019.TheIndianSubcontinent
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