Karachi, In its recent monetary policy statement, the State Bank of Pakistan (SBP) announced the decision to maintain the policy rate at 22%, while providing insights into the country's economic outlook and monetary strategies.
According to AKD Securities Limited, SBP Governor, in the post-monetary policy statement (MPS) analyst briefing, highlighted several key points. Core inflation is noted to be on a downward trajectory, excluding a spike in December 2023, with significant energy price increases being the main contributors to elevated NCPI levels in recent months. The SBP remains confident about maintaining a positive real interest rate on a 12-month forward basis.
The SBP projects that Pakistan's GDP will grow between 2-3% YoY during FY24E, largely driven by the agricultural sector, particularly cotton and wheat. Despite the promising outlook indicated by leading indicators for the Rabi season, there are risks associated with lesser rainfall.
Large Scale Manufacturing (LSM) growth is expected to return to a positive trajectory by the second half of FY24E, with industry capacity utilizations improving recently. The SBP anticipates the Current Account Deficit (CAD) to be between 0.5%-1.5% of the GDP, with a likelihood of falling towards the lower end of the range. Both textile and non-textile export volumes appear to be recovering.
On the financial front, gross financing needs, as per the International Monetary Fund (IMF), have decreased significantly, with amortization requirements standing at 5.5% of GDP for FY24, compared to 6.0% in FY23. The year began with total external repayments due of US$24.5 billion for FY24, of which US$10 billion remains, as the rest has been repaid or rolled over. The SBP anticipates an additional US$5 billion of the remaining balance to be rolled over.
Monetary aggregates show an improvement in the composition of money supply, with a downward trend in currency in circulation and seasonal spikes in deposit bases. The M2 has grown by 12% during CY23, compared to 22% in CY22. The Chairman of the SBP commented that the data will increasingly reflect the authority's fiscal consolidation stance over time.
The SBP also commented on the peculiar methodology used by the Pakistan Bureau of Statistics (PBS) for gas price hike calculations in inflation estimates. The new method includes fixed charges in addition to the base price, a change from the previous practice of considering only the variable component of gas prices.
Additionally, the SBP has decided to renew currency notes of all denominations, introducing new designs and enhanced security features in line with global best practices. The central bank is also developing a new methodology for determining profit rates offered by Islamic banks, ensuring compliance with Shariah principles.
For more information, AKD Securities Limited can be reached at their official channel: research@akdslresearch.com.