Tag: interest rates

  • World Bank lowers Pakistan’s growth forecast tighter financial conditions

    World Bank lowers Pakistan’s growth forecast tighter financial conditions

    Pakistan’s current-year growth forecast has been significantly reduced by the World Bank due to tighter financial conditions and limited fiscal space. The country’s economy is now expected to grow only 0.4 per cent in the current year, compared to the October 2022 forecast of 2 per cent growth.

    This bleaker forecast assumes that an agreement is reached with the International Monetary Fund for bailout funds. Pakistan’s fiscal year runs from July to June, and the country expects its economy to grow 2 per cent in FY23, although the country’s central bank chief has warned that this forecast could face downward pressure.

    Pakistan has been in economic turmoil for months, with an acute balance of payments crisis. Talks with the IMF to secure $1.1 billion in funding as part of a $6.5 billion bailout agreed upon in 2019 have not yet yielded fruit. Lower economic output and high prices in Pakistan have led to stampedes and looting at flour distribution centres set up across the country. The World Bank attributed the greater food insecurity for South Asia’s poor to elevated global and domestic food prices.

    The World Bank also lowered its 2023 regional growth forecast to 5.6 per cent from 6.1 per cent in October, citing rising interest rates and uncertainty in financial markets as putting downward pressure on the region’s economies. Most countries have raised interest rates at a rapid pace since the war in Ukraine last year led to choking supply chains and stoked inflation globally.

    Sri Lanka’s economy is forecast to contract by 4.3 per cent this year, reflecting the lasting impact of the macro debt crisis, with future growth prospects heavily dependent on debt restructuring and structural reforms. In January, President Ranil Wickremesinghe said Sri Lanka’s economy could contract by 3.5 per cent or 4.0 per cent in 2023 after shrinking by 11 per cent last year.

    The World Bank also lowered its forecast for India’s economic growth in the current fiscal year to 6.3 per cent from 6.6 per cent, due to the expected negative impact of higher borrowing costs on consumption. The current fiscal year began on April 1.

  • Gold price in Pakistan increases to Rs209,500 per tola on weak rupee and global trends

    Gold price in Pakistan increases to Rs209,500 per tola on weak rupee and global trends

    Gold prices in Pakistan increased on Monday, following global trends and a potential boost from a weakening rupee. As a result, yellow metal became more expensive, prompting traders to be cautious on the eve of a monetary policy meeting. According to data released by the All-Pakistan Sarafa Gems and Jewellers Association (APSGJA), the price of 24-carat gold increased by Rs1,200 per tola and Rs1,028 per 10 grams, settling at Rs209,500 and Rs164,645 respectively.

    In the inter-bank market, the rupee depreciated 0.44 per cent against the dollar on Monday, settling at 285.04, a loss of Rs1.25 according to the State Bank of Pakistan (SBP). As inflation in Pakistan spirals out of control, the SBP is expected to raise the policy rate by 100-200 basis points. In March, consumer price inflation in Pakistan rose to a record 35.37 per cent from the previous year.

    Gold is commonly viewed as a hedge against inflation, increasing in value as the purchasing power of the dollar decreases. In Pakistan, March’s monthly inflation surpassed predictions, reaching almost an all-time high of 35.4 per cent compared to the previous year. This has resulted in many individuals experiencing financial difficulty as the cost of living continues to outstrip average incomes. Last month, the central bank raised the policy rate by 300 basis points to 20 per cent.

    On Monday, world gold prices rebounded as the dollar trimmed its initial gains, which were driven by bets that OPEC’s surprise output cuts could raise global energy prices and cause central banks to increase interest rates. Spot gold increased by 0.5 per cent to $1,977.43 per ounce by 1206 GMT, with US gold futures gaining 0.4 per cent to $1,994.50. Earlier in the session, gold hit a one-week low of $1,949.54.

    However, when interest rates are raised to curb rising price pressures, the appeal of gold as an asset diminishes as it does not pay interest. In the domestic market, silver prices increased by Rs80 per tola and Rs68.59 per 10 grams, settling at their all-time highs of Rs2,350 and Rs2,014.47 respectively. While the international prices of silver fell 0.3 per cent to $24.01 per ounce, platinum was also down 0.3 per cent to $988.60, and palladium rose 0.7 per cent to $1,470.72.

  • Weekly inflation jumps over 46% as wheat flour prices reach all-time high in Pakistan

    Weekly inflation jumps over 46% as wheat flour prices reach all-time high in Pakistan

    The price of wheat flour has hit an all-time high, and this has caused weekly inflation to surge by 1.80 per cent week-on-week and 46.65 per cent year-on-year.

    The Pakistan Bureau of Statistics has attributed this rise in the sensitive price indicator to the increase in prices of several items, including wheat flour, tomatoes, potatoes, and bananas, among others. On the other hand, the PBS has noted a decrease in the prices of chicken, chilli powder, and LPG, among others.

    The increase in the price of wheat flour is due to the government’s change in subsidy mechanism, shifting from general subsidy to a targeted subsidy through the Benazir Income Support Programme. This change has led to a 42 per cent increase in the price of a 20kg bag of wheat flour, which has now reached an all-time high of Rs2,586. As we head into Ramadan, food prices are expected to continue rising, and the March 2023 CPI is expected to come in at 35.5 per cent on a YoY basis.

    Sticky inflation numbers, along with the stalled International Monetary Fund programme, have pushed the State Bank of Pakistan to raise its benchmark interest rate by 300 basis points to a 26-year high. The central bank is expected to raise the policy rate by another 100bps to 21 per cent in its upcoming monetary policy committee meeting on April 4. This rate hike is expected to spread massive poverty among the population.

  • S&P Global lowers Pakistan’s credit rating to CCC+

    S&P Global lowers Pakistan’s credit rating to CCC+

    Pakistan’s long-term sovereign credit rating was downgraded by S&P Global from “B” to “CCC+” to reflect the continuous deterioration of the country’s external, fiscal, and economic metrics.

    According to S&P, Pakistan’s already meagre foreign exchange reserves would continue to be under pressure through 2023 without a drop in oil prices or an improvement in international aid. The nation also faces significant political risks that could alter its future course of policies.

    According to the report, Pakistan’s economic and fiscal results are predicted to be negatively impacted by this year’s devastating floods, skyrocketing food and energy prices, and rising global interest rates, with refinancing issues over the medium term.

    The agency maintained its outlook at “stable”.

    With barely enough reserves to pay one month’s worth of imports, a dollar shortage, and a delay in its loan programme with the International Monetary Fund, Pakistan is in the midst of an economic catastrophe. Despite the payment of a $1 billion bond this month, long-term dollar bonds continue to trade at distressed prices, reflecting investors’ lack of confidence in Pakistan’s capacity to meet its international debt commitments.

    Following the terrible floods that hit the country earlier this year, Moody’s lowered Pakistan’s sovereign credit rating by one notch, from B3 to Caa1, citing heightened government liquidity and external vulnerability risks.