Monetary policy http://www.sbp.org.pk/m_policy/mon.

asp
July, 22 – November 24, 2017

Inflation outlook: -
The inflation in year over year terms has lightened at 3.9 percent in July 2017 however
the core inflation has remained 5.5 percent from April 2017 but it does represent that the aggregate
demand went up but still there is lower inflation expectation in the future. In September 29 IBA-SBP’s
Consumer Confidence Survey represented an uncertain rise in expected inflation during next six months
also expected to maintain it on low level blow fiscal year 18 target of 6.0 percent. However average
consumer price index inflation eased to 3.2 percent throughout July-August which was 3.8 percent
during the same period last year. In SBP Nov statement the average inflation was 3.5 percent
throughout sept-oct. Moreover, with these effective inflations control we saw enhancement in overall
Pakistan’s economy as it was kept on going expansionary face.

Monetary structure: -
There was strong credit demand from the private sector which triggered more
economic activities includes increase in the bank deposits and low interest rates which increase the
money supply throughout the market approaching high of 748 billion as compared with Rs446 billion in
Fiscal year 2016. Fixed investment and working capital lending increase by Rs. 258.5 billion and Rs 360.5
billion in Fiscal year 2017 compared with an expansion of Rs 171.7 billion and Rs 219.3 billion last year.
The main development in the monetary is change in the patterns of government borrowing for
budgetary financing instead of relying on state bank financing like last year. Now it is shifted to both SBP
and scheduled banks. However, SBP tried its best to maintain the active liquidity approach by keeping
the repo rates close to the policy rate which provide extra support to the availability of credit. Finally,
the financial account perspective shows that foreign direct investment inflows have risen, reaching US$
940 million by the end of October as compared to US$ 539 million during the same period last year,
indicating improving views regarding the economy. In spite of this positive development, SBP’s foreign
exchange reserves stand at US$ 13.5 billion on November 17, 2017 down from US$ 16.1 billion at end
June 2017. Going forward, progress on CPEC related projects and other official proceeds will be
instrumental in managing the overall balance-of-payments deficit. While looking in some important
factors like low interest rate or repo rate we can say that this is the expansionary monetary policy.

Policy rate: -
The Monetary Policy Committee has decided to keep the policy rate at 5.75% throughout
2017

Monetary policy http://www.sbp.org.pk/m_policy/mon.asp

January – November 30, 2018

Inflation outlook: -
In January 2018 inflation was recorded 3.8 percent and core inflation has still maintained
at 5.5 percent. The CPI inflation remained stable in Jan-Feb giving the average of 4.1 percent because of
low food prices and lower increase in house rent and this results in lowering the core inflation even
more from 5.5 to 5.2 during February. According to the prediction of IBA-SBP consumer confidence
surveys it will remain below 6.0 percent. The statement of May,25,2018 stats that the average food
inflation was locked in at 1.8 percent during Jul-Apr FY18, whereas the year-on-year food inflation was
close to zero in March and April 2018 This has been possible due to suitable stocks of wheat and sugar
along with smooth supply of those food which decay quickly. Opposing to this, average of Year over Year
NFNE-core inflation during the last two months has risen to 6.4 percent, which reflects the building up of
inflationary pressures in the economy. In July 14 statement the CPI average inflation was mentioned 3.9
percent and the core inflation for June was remained interchangeable between 5.2 and 7.1 percent. As
of September 29, statement inflation started to grow up from march till onwards the CPI inflation
indicated average 5.8 percent which was 3.2 in the previous months of fiscal year 2018 however it is also
stats that the average inflation for fiscal year 2019 will be in the range of 6.5-7.5. As of November 30,
statement there is a prediction that CPI inflation for the first four months of FY19 will increased to 5.9
percent which was 3.5 in the year of 2018.

Monetary structure: -
The money supply increase by 1.9 percent marginally in July-January FY18 which
shows decline in government efforts to cover expenditure and NFA. In the statement of May 25 there
was a net expansion of just 4.9 percent from July till may as compared to 7.3 percent during the same
period last year. This expansion is driven by the government borrowing for budgetary as well as the
private sector (borrowed Rs. 482 billion) and the consumer financing also saw a net expansion of 69
billion and that have made the demand high of industrial product which especially includes automobiles
and consumer durables. In spite of some issues in the solving of the problems of fertilizer and slowdown
in fixed investment the stock of private sector borrowings increased by Rs.768 billion. However,
statement of September represents that the monetary and fiscal measures were to affect large scale
manufacturing and the board money supply had a seasonal decline of 1.2 percent during July-September
and that was 0.9 in the same period previous year. But during this time the private sector credit had
performed better than last year and, in this statement, it is expected that the monetary growth would
be in between 10.5 to 11.5 percent in FY19. As of November, statement it showed many developments
but still the forex reserves have fallen to 8.1 US dollars from 9.1 USD but projected decrease in the
current account deficit, that could be further supported by the recent decline in international oil prices
will instill confidence in the foreign exchange market. These developments would help reduce pressures
on SBP’s net liquid foreign exchange reserves. Further more there were many contractionary monetary
conditions we saw an increase in the working capital and also in this period SBP also countered the BOP
challenges such as the exchange rate reflecting a demand-supply gap in the foreign exchange market,
the adoption of a flexible inflation targeting framework will help anchor inflation expectations,
improving productivity and competitiveness of exports will have to play important role to reduce the
external trade deficit.

Policy rate: -
As of January 2018, the Monetary Policy Committee raise the policy rate to 6.00 percent in last
year November it was 5.75% so there is a change of 0.25 percent. Changes through out this year are
following.
 Statement Policy rate Change
January 2018 6.00
March 30 6.00 (for next two months) 0
May 25 6.50 (from 28 may till onwards) 0.50%
July 14 7.50 (from 16 July till onwards) 1%
September 29 8.50 (from 1st October) 1%
November 30 10.0 1.5%

By looking to this table, we can easily say that the interest rate had an upward trend throughout the
2018 which indicate that the SBP were trying to use contractionary monetary policy approach.

Monetary policy http://www.sbp.org.pk/m_policy/mon.asp

January – November 30, 2019

Inflation outlook: -
The average CPI inflation for the first month is stayed at 6.0% which was 3.8 in the previous year period.
And the year over year inflation had stayed in a stable level in the last two months because of fall in the
in the prices of food and fuel. IBA-SBP’s consumer confidence survey, also represented stability in
households’ inflation expectation and core-inflation were recorded 8.5 percent however, the predicted
inflation range remain unchanged at 6.5 to 7.5 percent. But still this inflation has caused damage to the
economy as it is shrinked by 0.9% in this fiscal year. As of March 29, the averaged CPI inflation increased
to 6.5 means that it grew by 0.5 percent and the year over year inflation has risen to 7.2% and the core
inflation reached to 8.8 percent grew by 0.4%. In the statement of may 20, it has shown that the CPI
inflation recorded 9.4 percent in march on a year over year basis and the averaged headline CPI inflation
recorded 7.0% grew by 0.2%. As of July 16, the inflation reached at 7.3% because of more public
borrowings from SBP which overall results in exchange rate depreciation rise in petroleum and food
prices the CPI inflation was recorded 8.9 percent. Finally, we have current inflation rate of 7.34% which
is predicted to be fall at 5% due to the contractionary monetary policy and key developments.

Monetary structure: -
Although the tightening of monetary policy, private sector debt increased to 9.4
percent and much of the increase is contributed due to the working capital needs because higher raw
material prices this increase and the government borrowing was offset by the reduction in the foreign
assets of banking sectors. In whole the board money supply grew by 4.7 percent from 1 st July till 10 may
FY19. As of July 16, the M2 recorded 12.2 percent which was 10 percent in the previous year. According
to November statement Private sector credit fell by Rs 4.1 billion during the first four months of the
current fiscal year compared to an expansion of Rs 223.1 billion during the same period last year on
account of slowing economic activity. However, fixed investment loans increased, supported by the
SBP’s long term financing facility under which loans grew by Rs 11.3 billion during this period.

Policy rate: -
 As of January 2019, the Monetary Policy Committee raise the policy rate to 10.25 percent in last
year November it was 10% so there is a change of 0.25 percent. Changes throughout this year are
following.

Statement Policy rate Change

January 2018 10.25
March 30 10.75 0.40%
May 25 12.25 1.5%
July 14 13.25 1%
September 29 13.25 0%
November 30 13.25 0%

By looking to this table, we can easily say that the interest rate had an upward trend throughout the
2019 but it seems that it is reached to its higher level it may go downward. However SBP has used the
contractionary monetary policy to control inflation by reducing the money supply.