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Pakistan to go for another rate hike on IMF guidance, analysts say

Published

10 months ago

July 27, 2023

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Pakistan to go for another rate hike on IMF guidance, analysts say

Pakistan’s central bank will likely raise its key interest rate again on Monday to tackle persistently high inflation, giving in to pressure from the International Monetary Fund (IMF), Reuters quoted analysts as saying.

The move is expected despite the fact that the business community has been critical of the rate hike trend, citing paralysed economic activity which means no expansion or growth in businesses and thus no new job opportunities for the people who have been crushed by unprecedented inflation.

Hence, reduced purchasing power means the domestic demand has shrunk amid a significant decline in exports due to high cost of production making the produce expensive in world markets where too the people are feeling the heat because of high inflation.

Reuters mentioned in its report that Pakistan must continue its monetary tightening cycle, the International Monetary Fund (IMF) said in a staff report earlier in July, a week after the lender approved a new bailout arrangement with the South Asian nation which helped it avert a debt default.

Nine out of 16 analysts predicted the State Bank of Pakistan will raise the key rate by 100 basis points (bps) to 23 per cent at its policy meeting next week, while one saw a smaller 50 bps increase and six expected no change.

The State Bank of Pakistan (SBP) has raised its key policy rate by 12.25 percentage points since April 2022, mainly to curb soaring inflation.

SBP held rates steady in June saying inflation had peaked at 38% in the preceding month. But before the end of the month, it raised rates by 100 bps at an emergency meeting in an effort to secure IMF funds, citing “slightly deteriorated inflation outlook”.

In the Memorandum of Economic and Financial Policies (MEFP) that resulted from its talks with the IMF, Pakistan said it stands ready to consider further action at the next monetary policy committee meeting and subsequent ones until inflation and inflation expectations are on a clear downward path.

Sami Tariq, head of research at Pak-Qatar, said as a pre-emptive measure to control inflation arising out from increase in administered utility prices of gas and electricity, the central bank would raise rates by 100 bps.

Most analysts believe the rate increase would be done largely to satisfy the IMF’s criteria.

However, Shivaan Tandon, an economist at Capital Economics, said that the worst may now be over for Pakistan given inflation is likely to have peaked and IMF funding is now secured.

Still, he added price pressures in the economy remain extremely elevated and policymakers would want to guard against the risk of high inflation becoming entrenched.

“We think the SBP will aim to suppress domestic demand through further monetary tightening to keep a lid on imports, contain the current account deficit and mitigate downward pressure on the currency,” Tandon said.

However, the analysts who predicted no change in rates said there was no major change in price pressures since the last policy meeting to warrant a hike this month.

Mohammad Sohail, CEO at Topline, said the consumer price index, sensitive price index and the current account are all showing positive trends.

However, record-high interest rates and inflation skyrocketing the cost of production mean no one is ready to invest in productive sectors. Thus, this rate policy advocated by the IMF and pursued by top central banks will push Pakistan further into quagmire.

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Chinese firm aims to expand investments in Pakistan, shows interest in mining sector

Published

2 days ago

May 17, 2024

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Chinese firm aims to expand investments in Pakistan, shows interest in mining sector

A notable Chinese company has expressed keen interest in expanding its investment in Pakistan, in yet another sign of investor confidence boost in the leadership of Prime Minister Shehbaz Sharif.

A delegation from Chinese firm MCC Tongsin Resources led by its Chairman Wang Jaichen called on PM Shehbaz here on Friday.

The premier invited the Chinese company to invest in Pakistan’s mining sector and manufacturing of export goods.

Shehbaz assured the delegation that his government would extend all-out facilitation to the company from minerals exploration and processing to the export of goods.

The PM instructed the relevant federal ministers and officers to continue consultation with the Chinese firm, taking the Balochistan chief minister, provincial departments and stakeholders on board.

The delegates reposed trust in PM Shehbaz’s leadership, and expressed keen interest in enhancing their investment in Pakistan’s mining and minerals sectors.

The delegation briefed Prime Minister Shehbaz about the construction of a mineral park in Pakistan and their future investment plans.

The premier welcomed the Chinese firm and highlighted the priority steps by his government to promote foreign investment in Pakistan.

He said that being a time-tested friend, China supported Pakistan in every difficult hour for which the Pakistani nation was grateful to the leadership and people of China.

Federal ministers Ahad Khan Cheema, Dr Musaddik Malik, Rana Tanveer Hussain, Jam Kamal Khan and relevant senior officers attended the meeting.

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Business

Govt jacks up power price by Rs1.47 per unit

Published

2 days ago

May 17, 2024

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Govt jacks up power price by Rs1.47 per unit

The government on Friday increased the electricity tariff by Rs1.47 per unit.

According to Nepra sources, the collection from consumers will take place in August, September, and October.

The electricity companies had requested the funds as part of the third quarter adjustment for 2023-2024, seeking Rs 31.34 billion under capacity charges.

Sources said that Rs5.57 billion were requested for operation and maintenance costs, and Rs12.38 billion were requested for the transmission and distribution impact under monthly fuel cost adjustment.

Previously, Nepra had completed the hearing on the electricity companies’ request under the quarterly adjustment.

Nepra approved the Power Division’s request, allowing an increase of Rs 1.45 per unit in electricity prices.

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Business

Hong Kong allows China’s digital yuan to be used in local shops

Published

2 days ago

May 17, 2024

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Hong Kong allows China's digital yuan to be used in local shops

Hong Kong will allow mainland China’s pilot digital currency to be used in shops in the city, the head of its de facto central bank said on Friday, marking a step forward for Beijing’s efforts to internationalise the yuan amid rising geopolitical tensions.

The programme, backed by Beijing, will allow mainland Chinese and Hong Kong residents to open digital yuan wallets via a mobile app developed by China’s central bank and will permit them to make payments in retail shops and some online stores in Hong Kong and in mainland China.

Transactions using e-CNY, predominantly for domestic retail payments in China, hit 1.8 trillion yuan ($249.27 billion) as of end of June 2023, with 120 million digital wallets opened, according to the latest disclosure from China’s central bank.

Using the wallet, users can make payments at over 10 million merchants in 17 provinces and cities in the mainland.

Each wallet used in the city will be subject to a balance limit of 10,000 yuan, with single transactions and daily payments capped at 2,000 yuan and 5,000 yuan, respectively, officials from the Hong Kong Monetary Authority said.

Peer-to-peer transfers will not be allowed at the moment, according to the HKMA.

“By expanding the e-CNY pilot in Hong Kong .. users may now top up their wallets anytime, anywhere without having to open a mainland bank account, thereby facilitating merchant payments in the mainland by Hong Kong residents,” HKMA Chief Eddie Yue said.

Currently, users of other digital yuan wallets such as those operated by Ant Group and Tencent can make payments in the city.

Industrial and Commercial Bank of China, Bank of China Ltd, China Construction Bank Corp and Bank of Communications Co have been selected as e-CNY wallet operators.

The yuan’s use in global finance remains low, though it has shown steady increases.

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