Tag: Monetary Policy

SBP seeks design ideas from students, designers for new banknotes

In a significant move to enhance security features and align with technological advancements, the State Bank of Pakistan (SBP) has kicked off the process of designing and issuing a new series of banknotes covering all existing denominations.

The SBP, in an official statement released on Tuesday, emphasised the complexity of the issuance process, which involves multiple meticulous steps and stages that demand careful planning and coordination among various stakeholders. Despite the general timeline of 2-3 years for launching a new banknote series, the SBP aims to expedite the process and complete it within the next two years.

As an initial step towards the design process, the SBP has organised an art competition for the new banknote series. This competition is expected to yield diverse and creative ideas and themes that will form the basis for the subsequent phases of development.

The finalised concepts will be shared with renowned professional banknote designers, who will be selected through a competitive process to transform these ideas into the final printable designs for each denomination.

The final designs will then undergo scrutiny by the federal government for approval, ensuring that they meet the necessary standards and security features. The SBP assured the public that the existing banknote series would continue to remain in circulation even after the introduction of the new series.

Any decision regarding the withdrawal of the existing banknotes will be executed gradually and in a phased manner, contingent upon the successful issuance and sufficient circulation of the new banknotes.

The central bank highlighted that the periodic introduction of new banknote series, occurring approximately every 15–20 years, is a common practice among central banks. This practice aims to bolster the integrity of banknotes and integrate the latest technological developments in design and security features, ensuring a secure and reliable currency system for the nation.

January 31, 2024
State Bank of Pakistan’s reserves soar to $8.27 billion, highest level since July 2023

In the latest report, the State Bank of Pakistan (SBP) announced a significant rise of $243.1 million, or 3.03 per cent week-on-week, in foreign exchange reserves, reaching $8.27 billion as of January 19, 2024.

This boost is credited to the reception of the second installment of SDR 528 million, equivalent to $705.6 million, from the International Monetary Fund (IMF).

After settling government external debt repayments, the net increase for the week stands at $243.1 million, marking the highest level for SBP’s reserves since July 14, 2023.

Furthermore, the total reserves of the country witnessed an increase of $196.3 million, or 1.49 per cent, totaling $13.34 billion during the same week.

In contrast, commercial banks experienced a decline in reserves, dropping by $46.8 million, or 0.91 per cent, to $5.07 billion week-on-week.

It is noteworthy that in the current fiscal year, total liquid foreign reserves have shown a substantial growth of $4.18 billion, reflecting a 45.65 per cent increase.

Similarly, the ongoing calendar year has seen a rise of $0.12 billion, marking a 0.91 per cent increase in the nation’s reserves.

January 26, 2024
Pakistan informs IMF of preparedness to address near-term challenges

In a recent communication to the International Monetary Fund (IMF), the government has underscored its preparedness to address potential near-term challenges, signalling a commitment to maintaining economic stability.

The disclosure comes as part of the IMF’s first review under the stand-by arrangement.

The government, as revealed in the report, stands ready to respond decisively should near-term price pressures reemerge. This includes addressing stronger-than-expected second-round effects on core inflation and potential pressures on the exchange rate amid the normalisation of the current account.

Amid signs of weaker demand, positive supply developments, and decreasing pressures on the exchange rate, the government anticipates a notable decline in inflation in the coming months.

As a result, the policy rate was maintained at 22 per cent during the latest Monetary Policy Committee (MPC) meeting held on October 30. However, the government reiterated its readiness to respond promptly if there is a resurgence of near-term price pressures.

The primary objective is to ensure a clear downward trajectory for inflation and inflation expectations. The pace of future adjustments will be contingent on various factors, including inflation data, exchange rate developments, external position strength, and the fiscal-monetary policy mix.

The government aims to keep the real policy rate in positive territory on a forward-looking basis, signalling a commitment to bringing inflation within the target band by fiscal year 2026.

To enhance monetary policy transmission, the interest rate on major refinancing schemes, specifically the EFS and LTFF, will continue to be linked to the policy rate, with a spread of no more than 3 per centage points, as per the announcement by Pakistani authorities.

The report emphasised the importance of vigilance, highlighting that despite the return of the forward-looking real policy rate to positive territory, caution is necessary due to near-term risks.

With inflation expectations not yet firmly anchored, the Monetary Policy Committee is urged to respond robustly and promptly should inflationary pressures resurface.

Maintaining a positive real policy rate during a period of easing inflation and promptly addressing signs of new demand pressures or rising inflation expectations is seen as crucial.

This strategy aims to re-anchor inflation expectations and guide down core inflation from the second half of fiscal year 2024 onwards, contingent on the absence of a resumption in administrative import compression.

The report projects a significant decline in headline inflation through fiscal years 2025–26, aligning within the targeted 5–7 per cent range by fiscal year 2026. This outlook is supported by fiscal consolidation efforts and the normalization of global commodity prices.

While the IMF staff views the current stance as broadly appropriate given weak domestic demand, the report suggests that the MPC should remain prepared to respond resolutely if near-term price pressures reemerge, including second-round effects.

January 21, 2024
IMF forecasts improved inflation, slower economic growth for Pakistan in FY24

The International Monetary Fund (IMF) has adjusted its economic projections for Pakistan, providing a comprehensive review in its latest report. The key highlights include a downward revision of inflation forecasts and a moderated economic growth projection for the fiscal year 2024 (FY24).

According to the IMF’s first review report, the inflation forecast for Pakistan has been revised down to an average of 24 per cent in FY24, showing a decline from the earlier projection of 25.9 per cent.

This adjustment is attributed to the easing of food and energy prices, although the November gas tariff increase is expected to contribute to headline inflation in the coming months. Despite this, gradual declines are anticipated due to lower core inflation and recent movements in commodity prices.

The year-end inflation is projected to be 18.5 per cent in FY24 and further decrease to 9 per cent in FY25, as outlined in the report.

Conversely, the IMF has lowered its economic growth projection for Pakistan to 2 per cent in FY24, down from the initial estimate of 2.5 per cent. The revision reflects weaker domestic demand despite positive base effects from flood recovery, particularly in agriculture and the textile sector.

The report emphasised that continued external challenges, along with tight fiscal and monetary policies, are expected to dampen consumption and private investment.

The current account deficit (CAD) for FY24 is forecasted at $5.6 billion (1.6 per cent of GDP), below the previously projected $6.5 billion in the SBA Request. The import rebound is expected to be more restrained due to weakened domestic demand, while exports and remittances are also anticipated to be subdued.

IMF staff anticipates the CAD to remain around 1.5 per cent of GDP over the medium term, reflecting efforts to rebuild reserves and a market-determined exchange rate consistent with sustainability.

Despite a notable improvement in market sentiment since June, the IMF pointed out that risks to debt sustainability remain acute. Large gross financing needs and limited external financing pose challenges, and the global lender stressed that any policy slippages or insufficient financing could jeopardise the path to debt sustainability.

Furthermore, the IMF highlighted that external financing risks are exceptionally high, and delays in the disbursement of planned financing from international financial institutions or bilateral partners could pose significant threats to the government’s programme, given limited buffers. This could lead to an increased reliance on expensive domestic financing, potentially crowding out private credit.

In addition to economic concerns, the IMF warned that political tensions ahead of the upcoming elections may impact policy decisions and reform implementation, adding another layer of uncertainty to Pakistan’s economic outlook.

The IMF concluded that while public debt could remain sustainable with decisive programme implementation and adequate financing, downside risks remain exceptionally high for the country, necessitating careful attention to policy measures and external support.

January 21, 2024
Pakistan records $397 million current account surplus as exports, remittances increase

In December 2023, Pakistan’s current account exhibited a noteworthy surplus of $397 million, a stark departure from the $15 million deficit recorded in November, as reported by the State Bank of Pakistan (SBP) on Wednesday.

This surplus is attributed to heightened exports and remittances, coupled with a marginal decline in imports. Notably, there was a substantial improvement compared to the $365 million deficit posted in December 2022.

According to SBP data, exports (goods and services) surged to $3.526 billion in December 2023, marking a 14 per cent increase from $3.089 billion in December 2022. Concurrently, remittances rose to $2.38 billion, a 13 per cent marginal increase from the same period last year.

Conversely, total imports saw a 2 per cent decrease, totaling $4.97 billion in December 2023, compared to $4.98 billion in the corresponding period last year.

In the cumulative period of July–December FY24, Pakistan experienced a current account deficit of $831 million, a substantial reduction from the $3.63 billion deficit recorded during the same months in FY23—a remarkable decline of over $2.8 billion, or 77 per cent.

The SBP, in its recent Monetary Policy Committee meeting on December 12, highlighted a significant improvement in the current account balance, with the deficit narrowing by 65.9 per cent year-on-year to $1.1 billion during July-October FY24.

The current account’s pivotal role is underscored by its impact on Pakistan’s economy, which is heavily reliant on imports.

A widening deficit exerts pressure on the exchange rate and depletes official foreign exchange reserves, making these recent developments crucial for the nation’s economic outlook.

January 17, 2024
Interbank closing: PKR continues winning streak, settles at Rs281.22

The Pakistani rupee (PKR) extended its upward trend against the US dollar for the fifth consecutive session, gaining 0.02 per cent in the inter-bank market on Tuesday.

The State Bank of Pakistan (SBP) reported that the rupee concluded at Rs281.22 after a rise of Re0.06. In the preceding session on Monday, the rupee had experienced a slight increase, settling at Rs281.28 against the US dollar.

On a global scale, the US dollar took a pause in its rally on Tuesday, with traders expressing confidence in multiple Federal Reserve rate cuts this year.

This optimism is based on the belief that the slowdown in US inflation is significant.

Meanwhile, in the cryptocurrency realm, bitcoin maintained its position near the highest level since April 2022, driven by growing expectations of the imminent approval of spot bitcoin exchange-traded funds (ETF).

These market movements were influenced, in part, by the New York Fed’s recent Survey of Consumer Expectations, revealing that US consumers’ short-term inflation expectations in December reached the lowest level in almost three years.

A key reading on US inflation is scheduled later in the week, offering additional insights into the Federal Reserve’s potential room for interest rate adjustments this year.

Futures currently indicate the pricing in of nearly 140 basis points worth of easing by the Fed in the coming year.

Against a basket of currencies, the US dollar experienced a slight decline of 0.08 per cent, settling at 102.22, following a 1 per cent increase in the previous week.

January 9, 2024
Winning streak: Pakistani rupee appreciates 0.04% in fourth consecutive session

In a resilient display, the Pakistani rupee continued its upward trajectory against the US dollar, marking gains for the fourth consecutive session in the interbank market on Monday.

The State Bank of Pakistan (SBP) reported a noteworthy appreciation of 0.04 per cent, with the rupee settling at Rs281.28 after a rise of Re0.12.

This positive trend extends the rupee’s recent performance, as it achieved a 0.16 per cent appreciation during the preceding week, settling at Rs281.40 against the US dollar in the inter-bank market.

Impressively, this marks the eighth consecutive week of the local currency advancing against the greenback.

The momentum driving the rupee’s strength can be attributed to the recent announcement of a staff-level agreement (SLA) between Pakistan and the International Monetary Fund (IMF).

This agreement pertains to the first review of the $3 billion standby arrangement (SBA), reinforcing investor confidence in Pakistan’s economic stability.

A significant development contributing to this positive outlook is the notable increase in foreign exchange reserves held by the State Bank of Pakistan.

According to SBP data from the previous week, the central bank’s reserves surged by $464 million on a weekly basis, reaching $8.2 billion as of December 29.

Internationally, the US dollar maintained stability on Monday, with investors eagerly awaiting a crucial US inflation report later in the week. This report is expected to provide clarity on the Federal Reserve’s monetary policy outlook.

The greenback’s recent rally was supported by a rebound in US Treasury yields as traders adjusted their expectations regarding the pace and scale of potential Fed cuts this year.

This cautious optimism globally has complemented Pakistan’s positive economic indicators, contributing to the sustained strength of the Pakistani rupee against the US dollar.

January 8, 2024
Pakistan’s current account records first surplus since June 2023

In a noteworthy turnaround, Pakistan’s current account, after four consecutive months of deficits, revealed a surplus of $9 million in November 2023.

This marks a stark contrast to the $157 million deficit recorded in the same month the previous year, as reported by the State Bank of Pakistan (SBP) on Monday.

This surplus, the first since June 2023, is significantly lower in volume compared to its standing at $520 million.

Analysts attribute this surplus to a substantial rise in the country’s exports and remittances, coupled with a marginal decline in imports. Worth noting is the previous month’s current account deficit of $184 million in October 2023.

According to SBP data, November 2023 witnessed a 12 per cent surge in the country’s exports (goods and services) to $3.364 billion, compared to $2.999 billion in November 2022.

Simultaneously, remittances reached $2.25 billion, reflecting a 4 per cent increase from the same month last year. Conversely, total imports saw a nearly 6 per cent reduction to $5.29 billion in November 2023, down from $5.01 billion the previous year.

SBP reports a significant improvement, with Pakistan’s current account deficit for July-November of FY24 standing at $1.16 billion, a remarkable 64 per cent decrease from the $3.3 billion deficit in the same period of the previous fiscal year (FY23).

During its latest Monetary Policy Committee meeting on December 12, the SBP highlighted a notable enhancement in the current account balance, with the deficit narrowing by 65.9 per cent year-on-year to $1.1 billion during Jul-Oct FY24.

This shift is crucial for economically challenged Pakistan, heavily reliant on imports, as a widening deficit exerts pressure on the exchange rate and depletes official foreign exchange reserves, currently standing at slightly over $7 billion according to the latest data.

December 18, 2023
PKR gains ground against US dollar, closes at Rs283.26

The Pakistani rupee (PKR) continued its positive trajectory against the US dollar (USD) for the fourth consecutive session, appreciating by 0.09 per cent in the inter-bank market on Friday.

According to the State Bank of Pakistan (SBP), the rupee concluded at Rs283.26, reflecting an increase of Re0.25.

Interbank closing #ExchangeRate for today https://t.co/3Pw3Af5ceW #SBPExchangeRate pic.twitter.com/vlKwWdyOfH

— SBP (@StateBank_Pak) December 15, 2023

Thursday witnessed a marginal gain in the rupee, settling at Rs283.51 against the US dollar.

The ongoing optimism is buoyed by the recently released trade figures for November, revealing a noteworthy 13.16 per cent month-over-month (MoM) and a substantial 31.72 per cent year-over-year (YoY) reduction in the trade deficit, amounting to $1.89 billion.

Export figures exhibited a robust 7.66 per cent YoY surge, reaching $2.57 billion, while imports saw a YoY decline of 14.47 per cent, totaling $4.46 billion.

On the global front, the US dollar remained near four-month lows on Friday, influenced by the increasing likelihood of US interest rate cuts in the coming year.

Conversely, the euro and pound found support as their respective central banks reiterated the necessity for sustained higher interest rates.

Amid an eventful week for central banks, clarity emerged regarding the potential timing of interest rate cuts following Federal Reserve Chair Jerome Powell’s statement during Wednesday’s meeting.

Powell suggested that the tightening of monetary policy is likely concluding, with discussions about cuts coming “into view.”

The Fed’s projections imply a 75-basis-point cut next year from the current level, leading to a broad decline of the greenback against its counterparts.

The dollar index stands at 102.05, not far from the four-month low of 101.76 observed on Thursday, marking a 1.9 per cent decrease and its most significant weekly decline since July.

Oil prices, a pivotal indicator of currency dynamics, saw an increase on Friday, set to achieve their first weekly rise in two months.

This positive shift is attributed to a bullish forecast from the International Energy Agency (IEA) regarding oil demand for the upcoming year, coupled with a weaker dollar.

Brent futures rose by 21 cents to $76.82 a barrel at 0918 GMT, while US West Texas Intermediate (WTI) crude also experienced a 21-cent climb, reaching $71.79.

December 15, 2023
Interbank closing: Pakistani rupee gains 10 paisa against US dollar

The Pakistani rupee (PKR) demonstrated resilience for the third consecutive session against the US dollar (USD), marking a 0.04 per cent appreciation in the interbank market on Thursday, according to the State Bank of Pakistan (SBP).

The PKR settled at Rs283.51 after an increase of Rs0.10. This positive trend follows Wednesday’s marginal gain, where the rupee settled at Rs283.61 against the USD.

Interbank closing #ExchangeRate for today https://t.co/LMxaiXVVRr #SBPExchangeRate pic.twitter.com/xpYz6J5yb9

— SBP (@StateBank_Pak) December 14, 2023

In contrast to major currencies, the local currency experienced a loss of Rs2.64 against the Euro, closing at Rs308.49 compared to the previous value of Rs305.85.

The British Pound strengthened by Rs2.91, concluding at Rs357.96 in comparison to Rs355.05 from the preceding day.

The Swiss franc also witnessed gain of Rs1.46, closing at 325.35 compared to Rs323.89 in the previous session.

Against the Japanese yen, PKR lost 5.23 paisa, settling at Rs1.9972 versus Rs1.9449 a day ago.

In the ongoing financial year, the PKR has appreciated against the dollar by Rs2.48, or 0.87 per cent.

However, in the current calendar year, it has depreciated by Rs57.08, or 20.13 per cent.

In a related development, the Asian Development Bank (ADB), in its latest report, Asian Development Outlook (ADO), highlighted that Pakistan’s overall recovery is still constrained by moderate confidence and high inflation eroding purchasing power.

The ADB noted that Pakistan’s inflation rate averaged 28.5 per cent over July–October but is expected to ease amid fiscal consolidation, monetary tightening, and improved availability of food and key imported inputs.

December 14, 2023