Banking sector Updates

[ghazi52]

SBP maintains interest rate at 22pc​

Dawn.com
December 12, 2023

The State Bank of Pakistan (SBP) has decided to maintain the status quo and keep the key policy rate unchanged at 22 per cent to keep the aggregate demand in check, according to a press release issued on Tuesday.

“The decision does take into account the impact of the recent hike in gas prices on inflation in November, which was relatively higher than the MPC’s earlier expectation,” the central bank explained after a meeting of the bank’s Monetary Policy Committee (MPC).

“The Committee viewed that this may have implications for the inflation outlook, albeit in the presence of some offsetting developments, particularly the recent decrease in international oil prices and improved availability of agriculture produce.”

In light of the recent development, the press release said, “the current monetary policy stance is appropriate to achieve the inflation target of 5-7 percent by end-FY25.”
The decision to keep the interest rate unchanged was anticipated and at par with several analysts’ expectations. A report by Topline Securities showed that 63pc of key market players expected no change in the key rate.


Previously, Pakistan Bureau of Statistics data showed inflation in November hit another another high of 29.2, a slight increase from October but well below a peak of 38pc in May. The two major factors behind the hike were noted to be gas prices, which have jumped by 520pc in the month of November, and electricity rates.

Moreover, the country faces a long and winding road to economic recovery under the $3 billion loan programme, approved by the IMF in July. The programme, although helped saving the country from default, has stringent conditions aimed at curbing inflationary pressure.

The SBP policy rate was raised to an all-time high of 22 per cent in June and has stayed unchanged for the last three review meetings.

To view this content we will need your consent to set third party cookies.
For more detailed information, see our cookies page.

Accept third party cookies

Additionally, the State Bank’s foreign exchange reserves dropped by $237 million to $7 billion in the week ending Dec 1, the central bank said in a statement, as debt servicing on foreign loans continue to eat up SBP’s holdings.

The World Bank’s regional vice president for South Asia, Martin Raiser, recently said in an address to economists that Pakistan’s economy was stuck in a low-growth trap with poor human development outcomes and increasing poverty.

 

[ghazi52]

Pakistan’s central bank reserves increase $852mn, now stand at $7.75bn​

• Stata Bank of Pakistan attributes jump in dollar stockpile to receipt of official Government of Pakistan inflows

Pakistan’s central bank reserves increase $852mn, now stand at $7.75bn

Stata Bank of Pakistan attributes jump in dollar stockpile to receipt of official Government of Pakistan inflows

www.brecorder.com

 

[ghazi52]

SBP penalises 7 more banks for forex violations

Imposes fines of Rs775.54m on financial entities amid low foreign reserves

Salman Siddiqui
April 18, 2024

KARACHI: Pakistan's central bank has once again found at least seven commercial banks, including leading ones, to have violated instructions on transactions in foreign currencies, imposing financial penalties totalling Rs775.54 million on as many as nine banks in the quarter ending March 31, 2024.

The central bank has tightened its oversight of foreign exchange dealings by commercial banks and exchange companies amid the country's foreign exchange reserves (held by SBP) remaining low at $8 billion for the past couple of months until April 5, 2024, providing import cover for less than two months. These reserves are estimated to have further dropped to around $7 billion temporarily after repaying a foreign debt worth $1 billion last week. They are expected to rise back to around $8 billion again after the IMF releases the last tranche of $1.1 billion later this month (April 2024).

In a brief report titled 'Details of significant enforcement actions by SBP during the quarter ended March 31, 2024,' the State Bank of Pakistan (SBP) reported on Wednesday that it has imposed monetary penalties ranging from Rs38.54 million to Rs187.65 million on each of the seven banks found involved in violating instructions related to dealing in foreign exchange. The report did not provide details on the exact nature of the violations committed by the commercial banks regarding their foreign exchange dealings.

However, the central bank advised financial entities to improve their internal processes and strengthen their systems to ensure meticulous compliance with regulatory instructions and to avoid recurrence of similar violations.

Earlier, the central bank conducted a study and found 18 banks allegedly involved in overpricing foreign currency in rupee value in 2022 but decided not to penalise them due to strong opposition from the financial lobby. As many as 19 commercial banks had earned windfall income amounting to Rs110 billion in 2021 and 2022 by unnecessarily devaluing the rupee against the US dollar and other major currencies.

The government considered imposing a 40% tax on their windfall income in November 2023, which would have generated an additional Rs44 billion in revenues.

The central bank has repeatedly claimed to be in contact with the Ministry of Finance to take action based on their findings in 2022. In the recent past, the central bank has suspended licenses of many currency exchange companies for being involved in smuggling foreign currency across borders and manipulating the rupee-dollar parity.

 

[ghazi52]

To cut or not to cut: SBP might opt for caution in monetary policy​

• Reports by two brokerage houses suggest Pakistan's central bank poised to maintain cautious policy stance

BR Web Desk
April 19, 2024

Image generated by AI

The State Bank of Pakistan (SBP), scheduled to announce the key policy rate on April 29 (Monday), might opt to delay any easing of monetary policy as it looks to strike a balance between spurring growth and keeping inflationary pressures in check.

A report by brokerage house Arif Habib Limited (AHL) – in which it cited a divided poll result that suggested 52% respondents expect ‘no change’ in the upcoming announcement, while the remaining 48% see a cut – said the money market has also shown a mixed trend since the last monetary policy update.

The central bank’s Monetary Policy Committee (MPC) had kept the key policy rate unchanged at 22%, its sixth successive decision to maintain the status quo, in its last announcement on March 18.

“Amidst uncertainty regarding the inflation outlook, key central banks in both advanced and emerging economies have continued to maintain a cautious monetary policy stance in recent meetings,” the MPC had stated back then.

However, headline inflation decelerated to 20.7% on a year-on-year basis in March, data released on April 1 said, suggesting that a monetary easing cycle was on its way. Stocks have already rallied and the KSE-100 closed Friday at a record high.

AHL cautioned that market sentiment is still divided.

“In the primary market for Treasury bills (after the previous meeting), the changes have been marginal with the 3-month and 12-month yields showing no change, and the 6-month yield increasing by 0.99%,” it said in a report on Friday.

“In the secondary market, the changes have been more varied: the 3-month yield rose by 0.43%, the 6-month by 0.13%, and the 12-month by 0.45%. There was no change in the 3-year yield, a slight increase of 0.05% in the 5-year yield, and a minor decrease of 0.02% in the 10-year yield.

These trends indicate a divided market sentiment regarding the current monetary policy stance, it added.

AHL said that rising global oil prices – which already resulted in the government hiking fuel prices in its previous announcement as it passed on the impact – are “complicating matters further”.

“Anticipated fiscal measures in Pakistan’s FY25 budget could (also) exacerbate inflationary pressures,” it added.

“At the same time, ongoing negotiations with the International Monetary Fund (IMF), which has recommended maintaining a tight monetary policy, underscore the delicate balance the SBP must strike.

“With the IMF stressing the necessity for continuous economic adjustments and with Pakistan facing substantial debt repayments of $24 billion in the upcoming fiscal year, the SBP is poised to maintain a cautious policy stance.”

Pakistan, which is currently enrolled in a $3-billion Stand-By Arrangement (SBA), looks set to resume another programme with the IMF. Finance Minister Muhammad Aurangzeb on Friday said Pakistan hopes a broad outline of the new loan would be agreed upon in May, just in time as Islamabad finalises and announces its annual budget.

AHL said that recent trends suggest a scenario that typically supports a case for lowering interest rates.

“This policy adjustment could rejuvenate economic growth by decreasing borrowing costs, thus improving the business environment and enhancing production.

“However, this potential shift arrives at a time when Pakistan’s industrial sector shows signs of strain. For 8MFY24, the LSMI experienced a modest YoY decrease of 0.5%, with 11 out of 22 sectors marking negative growth, a clear indicator of a significant industrial slowdown.

“Furthermore, the government’s borrowing costs have escalated alarmingly, reaching Rs4.2 trillion in 1HFY24, accounting for ~61% of total revenue.”

In its report, AHL said a conservative approach aimed at stablising the economy while ensuring approval of a critical, new IMF programme might lead to a delay in monetary easing.

Separately, a report by another brokerage house Topline Securities also suggested a similar expectation.

In its survey, Topline said 51% of participants expect the policy rate to remain unchanged at 22%, while the remaining 49% anticipate a policy rate cut.

“We believe that the SBP will maintain cautious approach despite encouraging trends and adopt a ‘watch and see’ approach until the inflation trend maintain its fall,” it said in a note.

 

[ghazi52]

KARACHI: Within a week, the government borrowed over Rs650 billion from banks to meet its rising expenditure, reflecting the consequence of high inflation.

The State Bank of Pakistan (SBP) data showed that the government’s borrowing from commercial banks reached a record Rs5.5 trillion from July 1 to April 5, 2023-24. This is against Rs2.95bn in the same period last fiscal year.

Only last week as reported by the SBP on April 13, the government’s borrowings from the commercial banks were Rs4.842tr. It shows during a week the government borrowed Rs657bn to reach Rs5.5tr.

This massive borrowing is overburdening the economy, with the domestic debts not leaving space for revenue allocation other than interest payments. The government will have to pay more than half of the total budgetary outlay in interest payments.

During FY23, the government borrowed Rs3.7tr from banks, but the current situation looks alarming as the government has exceeded last year’s level by Rs1.784tr in the first nine months.