State Bank maintains interest rate

KARACHI: The State Bank of Pakistan (SBP) has announced the monetary policy for the next two months. The central bank maintained the interest rate at 5.75%.

While the Central Bank has been following a loose monetary policy for the last two years, its effects have not been reflected in the overall growth ranging from exports to the domestic economy.

Exports dipped by 8.3%YoY to US$22bn in FY16, vs US$24bn in the previous year (FY15).

While credit growth has witnessed expansion in FY16, initial months of FY17 have recorded significant retirement of private sector credit.

Despite lower energy and commodity prices, inflation in the first two months was recorded at 3.8%, up from last full year average of 1.83%.

Importantly, government borrowing composition from the SBP has completely changed, where it has preferred to borrow directly from SBP.

During 2MFY17 (the first two months of current fiscal year), the federal government borrowed PkR800bn from the Central Bank against a net retirement of PkR218bn SPLY.

Since the government has decided not to enter into the next IMF program, analysts noticed significant slowdown and reversal in the reform processes like government borrowings, energy reforms, tax reforms, privatization and re-structuring of loss making public sector enterprises.

Given the risk of slowdown in remittances, surge in imports and decline in exports, analysts see pressure on current account deficit and this is also visible in the first two months of current fiscal year.