Time may be allowed for the impact of recent policy developments: SBP

The State Bank of Pakistan kept monetary settings unchanged against the market expectations on Friday and the Monetary Policy Committee hosed down market speculation of pre-emptive policy management as inflation remained shy of central bank’s target.

The Monetary Policy Committee mentioned that it sees no immediate need for a raise in rate, “MPC is of the view that some time may be allowed for the impact of recent policy developments to unfold and has therefore decided to maintain policy rate at 6.0 percent for the next two months.”

Taking note of inflation, the committee acknowledges that “CPI inflation has remained moderate during the Jan-Feb FY18, averaging 4.1 percent mainly, because of subdued food prices and lower than anticipated increase in house rents”. The committee also presents SBP’s inflation position for the coming fiscal year “Going forward, a sticky core inflation along with a moderate outlook of food prices amid abundant grain stocks and the recent increase in policy rate are expected to contain average inflation well below the FY18 target of 6.0 percent and close to it for FY19.” SBP further notes that, “This assessment takes into account the alleged impact of exchange rate flexibility and its second round effects (specifically through adjustment in fuel prices), demand pressures, and volatile global oil prices.”

The Statement looks through the entire macroeconomic profile of country’s economy during the last two months. The statement has taken note of the measures taken by government conceding the imbalances on external fronts. “The full impact of recent exchange rate depreciations on exports and imports is going to unfold gradually in the coming months, financing of the high current account deficit is challenging as a healthy growth in FDI and higher official inflows were insufficient to finance it completely”.

Committee members also laud government’s steps to fix these shortcomings, “Government’s plans to timely mobilize external inflows, both official and commercial, will play a significant role in maintaining adequate level of SBP’s foreign exchange reserves and anchoring sentiments in the FX markets”.

“On a monetary front”, the statement proceeds, “a relative improvement in financial intermediation, coming from sustained growth of private sector credit (PSC) is leading broad money (M2) growth.” However, the sustained growth in the Private Sector was only 4.7 percent during the period under review. The bank thereon mentions moderate growth in fixed investments, sugar cane crush delays, excess fertilizer stocks and stale PSC growth. “However, there has been a deceleration in M2 growth in FY18 … more pronounced in recent months due to deteriorating net foreign assets (NFA) of the banking system.”

The SBP concludes the release with, “Following detailed deliberations, the Monetary Policy Committee is of the view that some time may be allowed for the impact of recent policy developments to unfold and has therefore decided to maintain policy rate at 6.0 percent for the next two months.”