August 23, 2022 (MLN): In the light of the necessary reversal of the energy subsidy package, inflation will peak in the coming months while it may slow down gradually, Acting Governor Dr. Murtaza Syed said in an interview with Bloomberg Asia.
The headline inflation will hover around 18 to 20% over the rest of the year. However, it will sharply fall in next year due to tight fiscal and monetary policies along with the normalization of commodity prices.
When asked about yesterday’s decision on the status quo in the policy rate, he said the Monetary Policy Committee (MPC) unanimously voted to keep the policy rate at 15%. This was in line with the market expectations and the committee decided to take a pause because of a few developments domestically as well as externally.
He highlighted three key domestic developments. First, headline inflation rose to 24.9% in July which was anticipated given the necessary reversal of unsustainable energy subsidies while we see business expectations of inflation have declined sharply.
Secondly, overheating domestic economy is cooling nicely as sales of petroleum, cement, fertilizers, autos, and real private sector credit have all declined month on month.
Meanwhile, the overall external position has also shown some improvement over the last few weeks. The trade deficit fell by half while the rupee rallied against the dollar and has become one of the best currencies in the month of August.
On the external side, he said, “We have been watching two things closely; global commodity prices and the dollar that retreated in recent weeks because of global growth slowdown sharply than anticipated while the market is reassessing the expectations of the US Federal Reserve tightening cycle that might be less aggressive than previously anticipated.”
Responding to a question regarding dependency on the global central bank rates, he said, “Pakistan is affected by what happens abroad and of course, there needs to be appropriate interest differential between the domestic and global central bank rates but keeping in mind the domestic needs too.”
While replying to a question about the concern over FX reserves, he said it is mainly due to the delay in the IMF review which has basically led to a drying up of external inflows.
“The good news is that the IMF program is fully back on track we are going to have an IMF board meeting in about six days in Washington D.C. that will release $1.2 billion in financing. It would also catalyze multilateral and bilateral lending. Over the rest of the fiscal year, we are excepting our reserves to go up to $16 billion.”
Further, $4 bn of additional financing is also expected from friendly countries including Qatar, UAE, and Saudi Arabia that will come over the next 12 months. The IMF estimated $31bn financing needs for Pakistan over the next 12 months whereas we are excepting to secure around $38 bn financing that would raise our FX reserves.
“There is no one who can say it’s a done deal with IMF,” said Dr. Murtaza.
However, with a confirmation of the staff level agreement, the letter of intent, and the upcoming meeting, we stay in the IMF program which is going to be safe, he added.
“Our trade deficit was large in June it came down quite nicely in July. We are not seeing any shortage of dollars in Pakistan but we have to take administrative measures to control the imports, to keep our current account deficit bounded to about 3% of GDP.”
Copyright Mettis Link News
Posted on:2022-08-23T16:38:34+05:00
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