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The SBP will hold eight monetary policy meetings every year, up from six before

KARACHI: The State Bank of Pakistan (SBP) said on Friday that, in accordance with worldwide best practises, it will raise the number of monetary policy meetings held each year from six to eight.

The date for the next rate-setting meeting has been changed to December 14.

“The State Bank of Pakistan has decided to raise the frequency of monetary policy reviews from six to eight times a year in order to make the process of monetary policy formulation more predictable and transparent in accordance with international best practises,” the central bank said in a statement.

Also read: On inflation, the SBP raises its rate by 150 basis points to 8.75 percent

“By taking this measure, the frequency of meetings will be equivalent to those of other emerging markets. It will also assist to make monetary policy operations more predictable.”

A second meeting of the SBP will be held on January 24, 2022, followed by three further meetings on March 8, April 19, and June 10. According to the announcement, the advance schedule for the following half-year of MPC meetings will be released during the June 2022 MPC meeting.

According to analysts, the reason for increasing the frequency of decision-making meetings is to imitate the methods of the world’s finest central banks.

“It would give ample time to the SBP to observe a situation and tailor its response appropriately,” said Samiullah Tariq, the head of research of Pak-Kuwait Investment Company.

Analysts attended a post monetary policy briefing quoted the SBP’s governor Dr Reza Baqir as saying that the monetary policy meeting was called sooner from Nov 26 to Nov 19 because the balance of risks has shifted from growth towards inflation and current account deficit faster than expected. “The governor highlighted that SBP wanted to remain ahead of the market and do a little bit more (considered material) as yields have already increased (3-month yield: 8.6 percent) in the secondary market,” said Syed Atif Zafar the director of research at Topline Securities in a report.

“However, it wanted to strike a balance by not doing too much to give an impression that a lot is wrong with the economy.”

In response to a question, the governor said that if international oil prices increase to $90-95/bbl, it is likely to be considered transitory and an accommodative policy should be adopted. However, an economy like ours does not have such a luxury.

“The focus should be on achieving growth and moderating inflation in the next fiscal year, for which such decisions are being taken,” the report said, citing from the SBP’s governor.

The burden of current account deficit has so far fallen on the exchange rate, and hence the SBP has opted to use other policy tools like the policy rate, cash reserve requirement etc, the governor explained.

Also read: SBP reserves fell by $381 million, but the Saudi $3 billion was not shown

The SBP also said real money supply has remained mostly above trend since Covid-19, and has accelerated in recent months. Money supply has increased because of higher government borrowing, while private sector credit has experienced a substantial increase.

Dr Ashfaque Hasan Khan, former advisor to the finance ministry said a sharp rise in the interest rates will lead to an increase of Rs270-300 billion in interest payments in one year. “The policy rate is likely to be in double digits soon. In Pakistan, the inflation is driven by the supply side phenomenon not by the demand side. A one percent increase in interest rates means 1.3 percent rise in inflation.”

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