MPS sprouts green shoots of economic revival

December 12, 2023 (MLN): Reaffirming the positive economic outlook amid general discussions about the economy's turnaround, today's monetary policy statement, accompanied by insights from the SBP's governor, painted a picture of burgeoning hope for the economy's trajectory.

The Monetary Policy Committee has kept the policy rate unchanged at 22% owing to the impact of the recent hike in gas prices on inflation in November, which was relatively higher than the MPC’s earlier expectation. However, within the folds of economic discussions, a narrative of optimism unfolded. 

About the reduction in the policy rate, the committee will closely monitor the movement of exchange rate and inflation as the decision to reduce the policy rate will be data-driven, Governor SBP Mr Jameel Ahmed said during the post-MPC meeting today.

Spotting the potential implications of inflation, the committee balanced these concerns with stirring developments as it noted the recent decline in international oil prices and the improved accessibility of agricultural produce, encountering inflationary pressure.

Going forward, the committee foresee a positive real interest rate over the next year along with a gradual decline in inflation due to limited aggregate demand, improved supply chain issues, and base effect.  

Since the last meeting in October, several crucial developments have emerged. Especially, the successful completion of the IMF SBA program's first review which is expected to bring financial influx, improving the SBP's FX reserves.

Moreover, for a moderate recovery, the economy's performance is aligned with the committee's expectations, according to the Q1-FY24 GDP growth.

In addition, consumer and business confidence surveys also signal an obvious improvement, representing a more positive sentiment predominant in the market.

The SBP Governor happily shared that the country is on track to meet Net Domestic Assets (NDA) and Net Foreign Assets (NFA) targets for December 2023.

It is pertinent to mention that the Net Foreign Assets of the SBP and the overall banking system have expanded since June due to considerable FX inflows in July. This, along with the contraction in NDA since June, has improved the compositional mix of broad money and reserve money.

Due to net retirements in private sector credit and more than seasonal decline in commodity operations financing, the broad money (M2) growth decelerated to 13.7% YoY as of November 24, 2023, from 14.2% YoY as of end-June.

On the foreign exchange side, the International Monetary Fund (IMF) will release a tranche of $700mn in January 2023, while the fund’s expectations of Pakistan's foreign exchange reserves to reach $9bn by June 2024.

It is important to note that the total external financing requirement for FY24 is $24.6bn out of which $5.4bn has already been paid while the rollovers amounted to $12.4bn of which $9bn has already been committed. Accordingly, the net principal payable in FY24 clocked in at $4.3bn, he informed.

Copyright Mettis Link News