There has been a great deal of speculation regarding the policy
review by the State Bank of Pakistan (SBP). With the recent devaluation, expected
inflation hike, all eyes were focused on the view that the SBP Monetary Policy
takes on borrowing rates. However SBP held them steady.
·
Inflation:
During the last policy review meeting in Jan this year, the SBP increasing
policy rate by 25 basis points at 6.00% on preemptive measure in-order to cope
with economic challenges. It had shifted
its policy stance the reason for this move was the risk of inflation. However,
the average Consumer Price Index (CPI) inflation was as low as 3.26% for the
month of Mar on YoY compared Feb’s 3.80%. Weakening currency likely to sharpen the impact
on retail inflation.
·
Vulnerable External
Account:
Pakistan’s
external debt could jump to $93.3 billion by this June’s 2018 projected
level. CPEC investments could accelerate
the build-up of related external payment obligations, adding Pakistan’s
capacity to repay could deteriorate at a faster pace, with faster depletion of
foreign exchange reserves having adverse effects on economic growth. However
recent Rupee depreciation allowing greater exchange rate flexibility on
permanent basis may help to contain the external pressure.
·
Domestic Demand Pressure:
Though moving ahead has been good until now, but growing
consumer demand are adding domestic pressure.
·
GDP Growth Could be
Driver:
The growth likely to
happen as agro sector continues to showing positive signs. While the Large
Scale Industrial sector is already out performing & showing consistent growth
and a turnaround in the capital investment cycle. All this is indicative of
higher growth potential in the coming quarters.
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