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Surrender 100% forex: SBP introduces Re1 incentive for Exchange Companies

  • Move aimed at improving 'liquidity in inter-bank market'

Ali Ahmed
04 Feb, 2022


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In order to “improve foreign exchange liquidity in the inter-bank market”, the State Bank of Pakistan (SBP) and the government are now incentivising Exchange Companies (EC) to surrender 100% of home remittances against Re1 for each US dollar.

“Under the scheme, Exchange Companies would be required to surrender 100% of the home remittances mobilised in the interbank market and in return, they will receive PKR 1 against each USD surrendered,” said the SBP in a statement on Friday.

Business Recorder had earlier reported that a meeting of the Economic Coordination Committee (ECC) of the Cabinet has approved fiscal incentive of Re1 against each US dollar to Exchange Companies against surrender of foreign exchange in the interbank market.
On Friday, the SBP issued the circular.

“Exchange companies bring home remittances with the help of Money Transfer Operators, in their accounts maintained with banks in the country.

“Earlier, ECs were required to surrender a minimum 15% of home remittances in the inter-bank market. To implement the scheme, SBP has now amended its regulation governing disbursement of inward remittances by Exchange Companies. Now the exchange companies shall surrender 100% of foreign currency received by them on account of inward home remittances, in equivalent US Dollars, in the interbank market on same the day.

“Since ECs mobilise a significant amount of home remittances, this scheme will help to improve the foreign exchange liquidity in the inter-bank market and the incentive provided is expected to encourage all exchange companies to bring more and more home remittances by reaching out to a wider set of remitters and their beneficiaries in Pakistan.”

The central bank informed that the scheme would be effective from Februar
y 4, 2022 (today).

“The incentive of Re1 for each US Dollar surrendered in the interbank market will be fixed irrespective of exchange rate, however, it is clarified that the incentive will not be allowed to exceed 1% of the exchange rate in case of Pak Rupee appreciation,” the SBP added in the circular.

The development come days after the Economic Coordination Committee (ECC) of the Cabinet approved the fiscal incentive.

Home remittances play a vital role in Pakistan’s economy, which faces a widening current account deficit on account of a high import bill, and are a major source of income for families of expatriate Pakistanis.

Remittances from Pakistani workers surged to $15.8 billion in the first six months of this fiscal year, 11.3% higher than a year earlier, revealed central bank data.

Meanwhile, SBP in its circular stated that “in order to become eligible for the incentive, the ECs shall open and maintain a separate foreign currency account for receiving inward home remittances through Money Transfer Operators (MTOs) and surrendering the foreign exchange in the interbank market”.

“The said foreign currency account will be used for transactions related to inward home remittances only and any amount received as commission or exchange gain etc. from MTOs shall not be credited in this account.

“Meanwhile, ECs shall surrender 100% of foreign currencies received on account of
inward home remittances, in equivalent US Dollars, in the inter-bank market on the same day.

“Furthermore, ECs shall maintain complete record of transactions related to inward home remittances, amount surrendered in the inter-bank market and claims submitted to the SBP under this scheme. The Standard Operating Procedures regarding submission of claims by the Exchange Companies will be issued separately.”

The SBP stated that ECs will ensure availability of all relevant record for examination by State Bank’s inspection teams.

It also warned that the violation of any instruction on the part of Exchange Companies would attract enforcement action under the relevant provisions of the Foreign Exchange Regulation Act, 1947.
 
Despite the strong opposition against it, the PTI government eventually succeeded in getting the State Bank Amendment bill passed by the Senate by a razor-thin majority.

The State Bank of Pakistan (SBP) Act, however, fell short of what appeared to be the dominant view forged in the extensive and intensive debate on the bill within and outside the government and the parliament Finally, the informal view found expression in a note of dissent by the opposition in the Senate. It said the draft law was a ‘document of financial surrender.’.....

The case for institutional autonomy has particularly found support among economists who, given the ground realities, find the SBP Act not as bad as perceived by the opposition parties.

Commenting on the new SBP law, an observer with insight says: “ it must be borne in mind that in Pakistan de jure, or laws on paper, are rarely applied and de facto conditions (the existing state) apply on an entire range of government appointments and functions.”

But it may be pointed out that changing ground realities and the country’s courts are prompting policymakers to strictly adhere to constitutional provisions. It is the denial of autonomy to semi-autonomous institutions and corporate state enterprises that have sapped their vitality and efficiency and made them financially unviable.

The underlying message for political parties is that people matter, more so in these turbulent times — mudslinging does not help


The business community is also handicapped with what it sees as the increasing government’s intervention in the realm of business. CEO Nishat Chunian Shahzad Saleem says: ”If we want to mitigate investment risk, we must reduce the state’s interference.”

To quote a senior political economist, Dr Pervez Tahir, “the State Bank autonomy has been forced by the International Monetary Fund. Judicial recourse has restored Higher Education Commission’s relative autonomy. But Pakistan’s Bureau of Statistics (PBS) still awaits autonomy”.

PBS has often been criticised for allegedly churning out inaccurate data especially on prices when it was part of the finance ministry.

The organisation has now been transferred to Planning Commission (PC). Mr Tahir argues that “the PC fixes the economic growth target and is therefore in direct conflict with the producer of the actual number.”

The issue of federalism — autonomy related to both the provinces and the LGs — has also come under renewed national focus.

On the 1st of February, the Supreme Court judgement emphasised that article 143-A of the Constitution casts a mandatory obligation on the provinces to establish a local government possessing a meaningful authority and responsibility in the political arena and administrative and financial matters. The court had reserved its decision on October 26, 2020, in the plea filed by MQM-P.

To quote an analyst, “financial powers have always been missing from our local bodies systems.”

The agreement between the Sindh government and Jamat-i-Islami (JI) stipulates that the establishment, meeting and award of the Provincial Finance Commission will be held within 30 days of the elections to finance LG’s development programme.

Published in Dawn, The Business and Finance Weekly, January 7th, 2022
 

PM Imran launches Raast person-to-person instant digital payment system


Dawn.com
February 15, 2022


Raast person-to-person payments launch ceremony in Islamabad on Tuesday. — Photo courtesy PTI Twitter

Raast person-to-person payments launch ceremony in Islamabad on Tuesday. — Photo courtesy PTI Twitter


Prime Minister Imran Khan on Tuesday launched Raast person-to-person payment system for instant digital transactions, saying it would create ease for the masses and bring them into the fold of formal economy.

Addressing the launch ceremony in Islamabad, he said the country's 220 million-strong population could become a "great asset" if brought within the formal economy through digitalisation. On the other hand, if the country did not take advantage of technological advancements and the majority of the population remained outside the formal economy, then it would become a "burden".

Sharing features of Raast, the premier said it would create ease for the common man, especially those who were afraid of going to banks because now they would be able to transfer money instantly through their mobile phones.

In addition, the digital payment system would bring people into the formal economy, he said. "A country progresses when the saving rate increases, we have amongst the lowest," he said, adding that people would have to become part of the formal economy if the country was to progress and the tax to GDP (gross domestic product) ratio would have to be increased.

PM Imran said the government was reaching more people to bring them into the tax net, warning defaulters, "We are about to reach you because we are getting data very quickly."

He noted the State Bank of Pakistan's (SBP) "highly successful experience" of involving overseas Pakistanis through Roshan Digital Accounts and advised the central bank to create a permanent cell to ease the process for them.

Terming overseas Pakistanis the "biggest asset", he said they send remittances that support Pakistan and played a big part in increasing forex.
The system would also make it easier to give money to the lower segment of society as aid, he added.

Raast is part of Prime Minister Imran's Digital Pakistan vision to include the poor segments of society in formal economy. It has been developed by the SBP in collaboration with Bill and Melinda Gates Foundation and Karandaaz, Pakistan.

'Revolution for financial inclusion'​

Speaking at the start of the ceremony, SBP Governor Dr Reza Baqir noted that the premier had directed the bank to find new ways for increasing financial inclusion. As a result, the SBP took initiatives to provide banking options to people who previously did not have them.

Baqir said the Raast person-to-person payment system would bring a "new revolution for financial inclusion in our country and make it easier for people to pay each other".

Raast has four special points, he shared, elaborating that the payment would be done in seconds, there would be no banking fee, a person's mobile phone number would be their Raast ID number and linked to their bank account and it would be available on every channel.

In addition, if a customer was not happy with a bank's service, they could de-link it from their Raast ID and add another bank instead, he added.

Finance Minister Shaukat Tarin also addressed the launch ceremony and appreciated the SBP's hard work regarding digital banking and financial inclusion.
When the system became efficient, people would have to use banks which would increase the national savings rate and reduce money in circulation, he added.
 
The Licensing and Regulatory Framework for Digital Banks unveiled by the State Bank of Pakistan (SBP) in January 2022 not only heralds afirm resolution by the central bank to shake up Pakistan’s banking industry, it does so while reinforcingits commitment to several objectives already being pursued, including the promotion of digital financial services, financial inclusion, and increased competitiveness in and innovation by the financial industry.

The first of the salient features supporting these objectives include the distinction between the two types of licenses — the Digital Retail Bank (DRB) license and the Digital Full Bank (DFB) license, without the compulsion to transition from the former to the latter license.

While the DRB license may be viewed as a limiting option as it allows the incumbent to only service retail customer segments excluding corporate and commercial, with less than half the minimum capital requirement (MCR of Rs4 billion) compared with what is required for commercial banks and the DFB license (MCR Rs10 billion), it is a significant opportunity for license takers to focus on segments previously not catered to successfully by the financial and banking industry.

Much like the MFI Ordinance which ringfenced service provision to a particular client segment, this focus on niche segments, it is hoped, will propel license takers to break new ground in terms of customer segments, models and products and services.
 

Electronic/online brokers: SECP decides to introduce concept

Sohail Sarfraz
Updated 22 Feb, 2022


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ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has decided to introduce the concept of electronic/online brokers in the stock market to provide investors with worldwide access to a variety of financial services.

According to a concept note on the “Online Only Brokers” issued by the SECP here on Monday, the new proposed category will offer different benefits. It includes increased investor outreach and financial inclusion; enhanced investor convenience as they can make perform activities such as account opening, investments, divestments and modifications without having to physically visit a brokerage office/branch and lower entry and overhead costs for new entrants.

The proposed licensing regime for Online-only Broker revealed that the applicants desirous of obtaining Online-only broker license shall comply with all the licensing, reporting and ongoing compliance requirements as applicable on Trading-only brokers under the Securities Brokers (Licensing and Operations) Regulations, 2016.

The online-only broker shall maintain a minimum Net worth of PKR 7.5 million. The issuance of TREC by PSX to Online-only broker at significantly reduced rates along with minimal documentation; The reduced license fee, reduced license renewal fee and reduced documentation requirements for obtaining license. The SECP may reduce its licensing fee for Online only broker to Rs50,000 instead of Rs100,000 and renewal fee to Rs25,000 instead of Rs50,000.
 
Foreign exchange reserves held by the State Bank of Pakistan (SBP) decreased $289 million on a weekly basis, clocking in at $16.8 billion, showed data released on Thursday.

The central bank did not provide a reason for the week-on-week decline in reserves.

Last week, SBP-held foreign exchange reserves were down $241 million.

Meanwhile, total liquid foreign reserves held by the country stood at $23.2 billion on February 18, 2022, stated the SBP. Net foreign reserves held by commercial banks stood at $6.4 billion.

Pakistan has been looking to build its foreign currency reserves on the back of loans, remittances, and higher exports. However, foreign direct investment continues to be an area of concern for policymakers.
 
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Monetary Policy Statement on 8th

Rizwan Bhatti
05 Mar, 2022..

The State Bank of Pakistan (SBP) will issue the Monetary Policy Statement on March 8, 2022.

The Monetary Policy Committee of SBP is scheduled to meet on Tuesday, March 8, 2022 at SBP Karachi to decide about the Monetary Policy.

According to analysts, the upcoming monetary policy meeting will be important for the MPS decision as the country is currently facing several economic challenges like higher inflationary pressure and current account deficit.

In its last monetary policy statement issued on Jan 24, 2022, the monetary policy committee maintained the key policy rate unchanged at 9.75 percent.

In its last MPS statement, the MPC was of the view that current real interest rates on a forward-looking basis are appropriate to guide inflation to the medium-term range of 5-7 percent, support growth, and maintain external stability. “If future data outturns require a fine-tuning of monetary policy settings, the MPC expected that any change would be relatively modest,” the SBP added.

Since the last MPS, major developments have taken place and fresh economic data will be considered by the monetary policy committee in the next meeting to be held on Tuesday.

As per SBP’s projections, the current account is expected to decline during the second half of FY22, as import growth slows in response to a normalization of global commodity prices and the fuller impact of demand-moderating measures.

However, as against the SBP expectations, the current account deficit in January 2022 is still above $2.5 billion. Cumulatively, the current account deficit rose to $11.58 billion deficit in the first seven months of this fiscal year (FY22) as against a $1 billion surplus in the same period of last fiscal year (FY21).

On other hand, inflation clocked in at around 12.2 percent in Feb 2022 versus 13.0 percent in Jan 2022 and 12.3 percent in Dec 2021. In addition, due to the Russia-Ukraine crisis, commodity prices have witnessed a sharp increase which has consequences on inflation and current account outlook. International oil prices also continued to surge.

According to Topline analysts, though commodity prices recently have risen sharply but keeping in view SBP’s focus to sustain economic recovery and its last forward-looking guidance, no change is being anticipated in upcoming MPS.

Copyright Business Recorder, 2022
 
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Cheaper bank loans fuel conversion of tube-wells to solar power

Khalid Hasnain
March 12, 2022


SOLAR panels are seen at the Interloop Dairy Farm in Sheikhupura; and (right) a net meter installed at the facility.—Dawn


SOLAR panels are seen at the Interloop Dairy Farm in Sheikhupura; and (right) a net meter installed at the facility.—Dawn

LAHORE: The State Bank of Pakistan (SBP) decision of allowing commercial banks to extend cheaper loans for conversion of tube-well operations to solar power for availing the net metering facility, the power distribution companies have started receiving an overwhelming response from such consumers across the country.

Under the provisions, the tube-well connections seeking net metering on a load up to 25kW will not require permission from the National Electric Power Regulatory Authority (Nepra) for the grant of generation licence, Dawn has learnt.

The facility will not only convert most such connections on solar but also enable consumers to produce and use the electricity on their own besides selling the additional/surplus to the respective Discos. It will also control the technical and commercial losses (power losses either due to theft or technical reasons).

“The tube-well connections can be converted to net-metering but the response was not good due to considerable investment (around Rs2 to 3 million on each connection), lack of loaning facility and awareness. Now the SBP has announced a loaning facility on a six per cent markup for launching such small schemes,” explained Lahore Electric Supply Company’s Market Implementation and Regulatory Affairs Director-General Altaf Qadir while talking to Dawn.

Moreover, the increasing power tariff due to fuel price adjustment and other issues have forced consumers having tube-well connections to contact us in this regard,” he added.

The net metering project had been launched in 2016 countrywide. It allows any domestic, commercial, industrial and other consumers having at least a three-phase meter connection to be part of the power generation system by installing it on his/her premises (house, shop, factory, open spaces, etc). Under the arrangements, such a consumer may sell the additional energy to the respective power distribution company and make stocktaking (calculations) with it at the end of the month.

Since the system allows the consumers to generate electricity from one kilowatt to one megawatt, Nepra issues licences to the applicants residing in the service area jurisdiction of all distribution companies. Before issuance of the licence, the respective companies are supposed to receive, scrutinise and process such applications.

According to Mr Qadir, there are hundreds of thousands of tube-well connections in the service areas of all nine Discos including Lesco, Faisalabad Electric Supply Company (Fesco), Multan Electric Power Company (Mepco), Gujaranwala Electric Power Company (Gepco), Islamabad Electric Supply Company (IESCO), Peshawar Electric Supply Company (Pesco), Tribal Area Electric Supply Company (Tesco), Quetta Electric Supply Company (Qesco), Sukkar Electric Power Company (Sepco) and Hyderabad Electric Supply Company (Hesco).

It may be mentioned that most of such connections exist in a vast rural area of Mepco. The number here ranges between 60,000 to 70,000. Similarly, Lesco has 25,000 to 30,000 connections and most exist in the areas of its Kasur and Okara circles. Qesco, Gepco, Pesco, Hesco, Sepco and other companies also have a large number of such connections.

Answering a question Mr Qadir said Lesco has so far processed as many 6,000 net metering related applications out of which most (equaling to 100MW or so) have been issued generation licence by Nepra.

Published in Dawn, March 12th, 2022
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Double Taxations...

Setting aside a Lahore High Court judgment, the top court has ruled that double taxation was not beyond the scope of the relevant legislature if in substance the levy in question was otherwise properly within its domain.

"The correct rule is that there is a very strong presumption against double taxation and a heavy burden is cast on the State to show that it has been resorted to,” read a six-page verdict authored by Justice Munib Akhtar while setting aside an LHC order, which had declared that Section 7 of the Punjab Finance Act, 2011 that remained in the field till 2015 as ultra vires the Constitution.

“However, if the language of the statute is otherwise clear then the levy cannot be declared unconstitutional on such basis,” it added.

Section 7 of the Act had imposed education cases on clubs.


A three-judge bench of the apex court led by Justice Ijaz ul Ahsan has directed all elite clubs that any amount that remained recoverable from them shall be paid in four equal quarterly installments, the first one being due and payable on June 30, 2022.

However, the SC judges were unable to agree with the LHC that double taxation was impermissible under the Constitution.

“The question of double taxation invariably arises (although this does not necessarily always need to be so) within the four corners of the same statute,” the order read.

"The case usually presented before the Court is that in addition to the charging section of a fiscal statute the State claims that pursuant to some other section(s) therein, the same subject matter is being taxed again. The objection taken by the taxpayer is that this is double taxation, i.e. the subject matter of the charging section is being taxed all over again. It is essentially in this context that the rule has been laid down and applied.”

However, even in this context if the court came to the conclusion that the levy imposed must be enforced regardless of whether it amounted to double taxation if the language of the other section was clear and unambiguously imposed the tax, the order added.

"This, of course, is not the case at hand. Here we have two different statutes, one being the 2000 Ordinance/2012 Act and the other the aforementioned Section 7 of the 2011 Act. The question of double taxation does not therefore arise. The only possible question could be whether the levy imposed by Section 7 was within the legislative competence of the province.”

The order also read that it was well settled that in determining the constitutionality of a levy, it was its substance that would be considered, regardless of the name or label attached to it.

"We are, with respect, unable to see how that entry has any relevance for present purposes. Clearly, and this was quite correctly accepted by learned counsel, the levy imposed by Section 7 was not on the sale of goods. When learned counsel were queried as to what, in substance, was the levy imposed by the section if not a sales tax on services, they were, with respect, unable to come up with a satisfactory answer."

The bench noted that in its view, the substantive nature of the levy was clearly a sales tax on services. “It could well be the case that this levy imposed a double financial or commercial burden on the respondents, and for the same transactions they were liable to pay sales tax both under the 2012 Act as well as Section 7.”

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KARACHI: The State Bank of Pakistan (SBP) said that the reversal in the monetary policy stance that saw an increase in the interest rate could lead to a slowdown in the industrial growth during the current fiscal year.

“The reversal in the monetary policy stance from September onwards, which has resulted in a 175 bps [basis points] increase in the policy rate (until November), and other policy measures — such as revisions in prudential regulations for auto and consumer financing, and a one percentage point increase in the cash reserve requirement for commercial banks — are projected to lead to a slight slowdown in industrial growth compared to earlier expectations,” the SBP said its quarterly report on the state of Pakistan’s economy issued on Thursday.

The slight slowdown in industrial activity is expected to be more than offset by the encouraging agricultural performance, based on output estimates of major kharif crops so far, along with the assumption that the higher target for wheat set by the government, from an already record-high output last season, will be met, the central bank said.

However, the major export-oriented industries, especially textiles and rice, would be largely shielded from the impact by their continued access to the SBP’s concessionary refinance schemes despite the rise in the policy rate, mark-up rates on these refinance schemes are still unchanged at low levels, it added.

The analysis and economic outlook of the report are based on data for the July-September 2021 period, and were finalised in November 2021, using data available as of then.

The government was targeting to reduce the fiscal deficit to 6.3 per cent in FY22 from 7.1 per cent in FY21, by increasing revenues via expansion in the tax net and the ongoing growth momentum, which would contribute to tax collection, the report said.

Published in Dawn, March 18th, 2022
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Pakistan’s current account deficit registered a massive 78% decline month-on-month, clocking in at $545 million in February 2022, the lowest in the ongoing fiscal year, showed data released by the State Bank of Pakistan (SBP) on Saturday. In January, the deficit stood at $2.531 billion.

“In February, the current account deficit fell sharply to $0.5bn, the lowest in FY22 and only one-fifth the level in January,” said the SBP.

The deficit is also the lowest since April 2021 when it was recorded at $262 million after which it gradually rose, putting pressure on the currency as well.

Cumulatively, during the eight-month period of the ongoing fiscal year (July-February of FY22), the current account deficit stood at $12.1 billion compared to a surplus of $994 million during the same eight months of the previous fiscal year (FY21), showed SBP data.

The current account balance is a key figure for Pakistan's economy. A widening deficit in the current account puts pressure on the currency that fell to its record low against the US dollar this week. With the ongoing Russia-Ukraine conflict, oil prices have increased, putting further pressure on net oil importers like Pakistan.

However, in February, Pakistan's import bill showed some respite as the import of goods decreased to $5.166 billion, down from $6.314 billion in January.

On the other hand, Pakistan's exports of goods during the month of February stood at $2.885 billion, up from $2.497 billion in January.

Prime Minister Imran Khan, currently facing a barrage of issues on the political front as the opposition moves its no-confidence motion, in a tweet post lauded the development.

"Deficit shrank to only $0.5bn in February, $2bn lower than in January and lowest monthly deficit so far this fiscal year. Exports close to all-time high and imports down 21% from their peak and strong growth in large scale manufacturing," tweeted PM Khan.

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Bank account holders can invest in equity market

Shahid Iqbal
March 30, 2022

KARACHI: Under the State Bank of Pakistan’s (SBP) ‘Shared KYC (Know Your Customer) Project’ resident investors can open accounts in the capital market using their bank’s portal or app, central bank governor Dr Reza Baqir said on Tuesday, adding that the move will pave the way for wider outreach of the equity market.

During a visit to the Central Depository Company (CDC) to mark the successful operations of important projects for Pakistan Capital Market, namely Roshan Equity Investment for Roshan Digital Account (RDA) holders and Raast for dividend payments, Dr Baqir appreciated the CDC’s role. The successful roll-out of important projects of national interest like RDA, of which Roshan Equity is a component, and Raast have been initiated by the central bank and very well executed by commercial banks, he said.

He acknowledged that CDC has played an active role in the operations of Roshan Equity.

“This is only the beginning of what our vision is for the development of Pakistan’s Capital market,” said Dr Baqir.

“For the Shared KYC Project, CDC will again act as the information sharing bridge for the digital opening of capital market accounts through banking portals for local resident investors with the objective of removing duplication of information capture and KYC processes,” said CDC CEO Badiuddin Akber.

The CDC is already processing thousands of transactions related to Roshan Digital Accounts and Raast for the Pakistan Stock Exchange.

Meanwhile, brokerage houses said the Shared KYC Project is good for the growth of the equity market.

“This will save a lot of time and effort for opening a broker account and may help in increasing the investor base,” said Mohammad Sohail, the CEO of Topline Securities.

“I think this is very helpful as account opening has been a major issue in Pakistani market,” said Samiullah Tariq, head of research at the Pak-Kuwait Investment and Development Company. “The investment ratio is very low on per capital basis compared to regional countries,” he said, adding that the number of investors is almost one tenth of Bangladesh market.

He was of the view that this initiative should help increase penetration in the domestic investors and attract domestic investors towards formal avenues including investment in the equity market.

“It will also help grow companies and raise capital when new investors are seeking investment avenues,” he added.

Published in Dawn, March 30th, 2022
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SBP JACKS UP MONETARY POLICY RATE TO 12.25%​



The State Bank of Pakistan (SBP) has set the monetary policy rate at 12.25%, a statement from the central bank said Thursday.

The Monetary Policy Committee (MPC) noted in its statement the significant uncertainty around the outlook for international commodity prices and global financial conditions necessitated a strong and proactive policy response so it decided at its emergency meeting today, to raise the policy rate by 250 basis points to 12.25 percent.

This increases forward-looking real interest rates (defined as the policy rate less expected
inflation) to mildly positive territory. The MPC was of the view that this action would help to safeguard external and price stability.

The MPC also noted that SBP is in the process of taking further actions to reduce pressures on inflation and the current account, namely an increase in the interest rate on the export refinance scheme (EFS) and widening the set of import items subject to cash margin requirements.

These items are mostly finished goods including luxury items and exclude raw materials. The announcement of these measures is expected soon and will complement the action taken by the MPC on interest rates today.

The statement says that since the last MPC meeting, the outlook for inflation has deteriorated and risks to external stability have risen. Externally, futures markets suggest that global commodity prices, including oil, are likely to remain elevated for longer and the Federal Reserve is likely to increase interest rates more quickly than previously anticipated, likely leading to a sharper tightening of global financial conditions.

On the domestic front, the inflation out-turn in March surprised on the upside, with core inflation in both urban and rural areas also rising significantly. While timely demand-moderating measures and strong exports and remittances saw the February current account deficit shrink to $0.5 billion, its lowest level this fiscal year, heightened domestic political uncertainty contributed to a 5 percent depreciation in the rupee and a sharp rise in domestic
secondary market yields as well as Pakistan’s Eurobond yields and CDS spreads since the last MPC meeting.

In addition, there has been a decline in the SBP’s foreign exchange reserves largely due to debt repayments and government payments pertaining to settlement of an arbitration award related to a mining project.
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Ratings agency Moody’s said on Thursday the latest bout of political unrest in Pakistan, following a tabled no confidence motion against ex Prime Minister Imran Khan threatens slowing down the already stalling reform drive in the country and is ‘credit negative’.

“We view the no-confidence motion as credit negative because it raises significant uncertainty over policy continuity, as well as the government's ability to continue to implement reforms to increase productivity growth and secure external financing, including from the International Monetary Fund (IMF),” Moody’s said in its statement.
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