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Business Recorder
4 hours ago
- Business
- Business Recorder
SBP keeps policy rate unchanged; experts surprised
KARACHI: Contrary to market expectations, the Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) decided on Wednesday to keep the policy rate unchanged at 11 percent, citing emerging risks of rising inflation and a widening trade deficit. The MPC also emphasized that inflation outlook is susceptible to multiple risks emanating from uncertain global commodity prices and trade outlook, unanticipated adjustments in administered energy prices, and potential widespread floods. The Committee had reduced the key policy rate from 22 percent to 11 percent between June 2024 and May 2025. However, it has kept the rate unchanged at 11 percent for the past two meetings, citing concerns over a higher inflation outlook. Addressing a press conference following the committee meeting at the SBP headquarters, Governor SBP Jameel Ahmed provided insights into the decision to maintain the policy rate. He noted that headline inflation eased to 3.2 percent year-on-year in June 2025, largely driven by a decline in food prices, while core inflation also registered a modest decrease. However, the Monetary Policy Committee (MPC) observed that the inflation outlook has deteriorated somewhat due to larger-than-expected adjustments in energy prices, particularly gas tariffs. Despite this, inflation is expected to gradually stabilize within the target range in the coming months, he added. The Governor also highlighted that despite no change in the key policy rate, economic activity continues to strengthen, supported by the ongoing impact of earlier policy rate cuts. At the same time, the Committee flagged concerns over a potential widening of the trade deficit in FY26, amid stronger domestic demand and a slowdown in global trade. Considering the overall macroeconomic outlook and emerging risks, the MPC deemed the decision to maintain the status quo essential for ensuring price stability, the Governor SBP said. He said that in view of economic developments and potential risks, the Committee assessed that the real policy rate should continue to be adequately positive to stabilize inflation in the target range of 5-7 percent. He also emphasized on the need to continue the ongoing prudent monetary and fiscal policy mix to sustain macroeconomic stability. Moreover, the Committee reiterated its view that without structural reforms it would be difficult to achieve higher growth on a sustainable basis, he maintained. Governor SBP also highlighted key developments. First, the SBP's FX reserves crossed $14 billion on the back of improved financial inflows and a current account surplus. Second, the recent upgrade in Pakistan's sovereign credit rating led to a decline in Eurobond yields and narrowed CDS spreads in international markets. Third, inflation expectations increased slightly for consumers but declined for businesses in the latest sentiment surveys. Fourth, FBR tax revenue for FY25 was recorded at Rs11.7 trillion, which fell short of the revised estimate by around Rs200 billion. Lastly, he mentioned that global oil prices remained volatile, whereas metal prices increased and at the same time, the impact of global trade tariffs remained uncertain, prompting central banks to maintain their cautious monetary policy stance. According to the Monetary Policy statement, despite upward revisions in motor fuel prices and electricity tariffs, energy prices remained lower on a yoy basis. Going forward, energy inflation is expected to rise from current levels amidst the significant upward adjustment in gas tariffs, phasing out of temporary reduction in electricity tariffs (of Q4-FY25), and recent increase in motor fuel prices. The MPC noted that y/y inflation is expected to mostly remain in the range of 5-7 percent in FY26, though it may cross the upper bound in some months. The current account posted a surplus of $328 million in June, bringing the cumulative surplus to $2.1 billion (0.5 percent of GDP) in FY25. Workers' remittances remained instrumental, as they more than offset the widening trade deficit. On the financing front, a sizable portion of planned official inflows materialized in June, propelling SBP's foreign exchange reserves beyond $14 billion. The government has also revised estimates indicating an improvement in the fiscal position for FY25, with both the primary and overall fiscal balances (as percent of GDP) surpassing their respective targets. This improved performance was achieved through a substantial growth in both tax and non-tax revenues. However, despite achieving around 26 percent growth, the revised FBR revenue target was slightly missed. For FY26, the government aims for further fiscal consolidation with a targeted primary surplus of 2.4 percent of GDP. Achieving this target will hinge on concerted revenue collection efforts and rationalization of expenditures. The Committee also stressed the importance of continuing with the fiscal consolidation to sustain the macroeconomic gains of the past two years. Broad money (M2) growth accelerated to 14.0 percent y/y as of July 11, up from 12.6 percent at the time of the last MPC meeting. This was primarily led by higher contributions from NFA of the banking system due to improved FX reserves. Meanwhile, private sector credit growth accelerated to 12.8 percent y/y, supported by easing financial conditions and improving economic activity. Notably, the expansion in credit was broad-based, with increases noted in working capital loans, fixed investment advances and consumer financing. The key borrowing sectors included textiles, telecommunications, and wholesale and retail trade. Meanwhile, the currency to deposit ratio, which had declined in June, increased in July. As a result, the SBP had to enhance its liquidity injections to align the interbank overnight repo rate with the policy rate, which led to an increase in reserve money growth. Reuters adds: Central bank left its key interest rate unchanged at 11% on Wednesday, saying the outlook for inflation had deteriorated due to energy prices, surprising analysts who had expected another cut. The Monetary Policy Committee of the State Bank of Pakistan said in a statement that energy prices, particularly for gas, had risen more than expected. The panel also noted that the trade deficit was expected to widen further in the fiscal year ending June 2026, amid a pickup in economic activity and a slowdown in global trade. 'The inflation outlook has somewhat worsened,' it said. 'Given this macroeconomic outlook and the emerging risks, the MPC considered today's decision as necessary to ensure price stability.' In a Reuters poll this week, all 15 analysts said they expected the SBP to ease, with nine forecasting a 50 basis-point cut, four predicting a deeper 100 basis-point reduction and two projecting a smaller 25 basis-point cut. 'You have to be cautious,' State Bank Governor Jameel Ahmad, told a news conference in Karachi, after announcing the policy rate, saying it is better to wait than to take action and then have to reverse it. Pakistan is pushing through a series of economic reforms under a $7 billion International Monetary Fund Program, including a contractionary government budget passed in June that slashes spending to curb its fiscal deficit. In its Economic Outlook Update on Tuesday, the IMF cut its growth forecast for Pakistan for the fiscal year ending June 2026 to 3.6%, well below the government's 4.2% target. STABILISING INFLATION The Committee assessed that the real policy rate should be adequately positive to stabilise inflation in the target range of 5%–7%, the statement said. Headline inflation slowed to 3.2% in June and is projected at 3.5%–4.5% in July, within the SBP's 5.5%–7.5% target range for the fiscal year ending June 2026. The State Bank took a cautious stance given the fragile situation of the currency and the balance of payments, said Adnan Sheikh of Pakistan Kuwait Investment Company, a Pakistani development financial institution. 'It opted to wait and see the impact of recent monetary easing, and the crop situation given the flooding,' he said, referring to heavy monsoon rains across the country this month. The SBP held rates in June after a 100 basis-point cut in May. Since June 2024, it has lowered its policy rate by 1,100 basis points from a record 22% as price pressures receded. The government says the economy has stabilised, but analysts warn growth remains fragile and global commodity price swings could still add pressure on prices and external balances. GDP is projected to grow between 3.25% and 4.25% this year, the governor said. 'We have to grow at a pace which we can maintain,' he said. Copyright Business Recorder, 2025
Business Recorder
14 hours ago
- Business
- Business Recorder
Pakistan's three Eurobonds trade at over $1 premium for first time in years
KARACHI: For the first time in recent history, Pakistan's three Eurobonds are trading at a premium price of over $1 a unit in international capital markets at present, suggesting the confidence of global investors on the domestic economy has boosted sharply. 'Pakistan's three Eurobonds are trading at premium for the first time after several years,' State Bank of Pakistan (SBP) Governor Jameel Ahmad said while speaking at the monetary policy press conference on Wednesday. SBP keeps policy rate unchanged at 11% The three bonds include the two maturing in September 2025 and April 2026, he said, recalling Pakistan's Eurobonds were trading 'at deep discount – at one-third of their issue price at 37-38 cents in 2023'. Arif Habib Limited, Head of Research, Sana Tawfik, added the Eurobonds maturing in September 2025 and April 2026 closed Wednesday's trade at 100.28 cents and 100.05 cents, respectively, in the international market. The third bond, maturing in January 2029, closed the day trade at 100.74 cents. There are six Pakistan's Eurobonds trading in global capital markets. The total issuance size of the bonds sum at $6.8 billion. They are maturing between September 2025 and April 2051. SBP governor Ahmad said the country's global bonds had revived after two international credit rating agencies upgraded Pakistan's rating to 'B-' from 'CCC+' along with a stable outlook. He said the boost in global investors' confidence - exhibited through the rising Eurobonds - was achieved in the wake of repayment of foreign debt and interest payments on the debt on time and a notable growth in foreign exchange reserves to $14.5 billion in FY25 compared to $9.4 billion in the prior year. Besides, the return of stability in the domestic economy and rupee-dollar exchange rate, and a jump in inflows of workers' remittances to record high at $38.3 billion in FY25 compared to $32.3 billion in FY24 also played pivotal roles. 10-year Eurobond: $1bn repayment made despite dearth of forex Ahmad said Pakistan would repay a total of $1.8 billion to global investors against the maturity of two Eurobonds falling in the current fiscal year 2025-26. The maturity of the two bonds and increase in the country's credit rating may allow Pakistan to raise new debt from global capital markets through selling new Eurobonds in future. Pakistan to repay a net $10bn in FY26 SBP governor said Pakistan was scheduled to repay $25.9 billion, including rollovers, in FY26. Giving a breakup, he said, the expected rollovers amounted to $16 billion in the current fiscal year 2025-26. However, the country has to pay a net $10 billion over the year. This includes repayment of commercial loans at $3.75 billion and interest payment on the overall debt at $4 billion over the year. Pakistan's overall foreign debt has remained stagnant at around $100 billion for the past three years, suggesting the new borrowing was purely being utilised to repay the maturing debt, Ahmad said. Earlier, the debt had surged by on an average $6 billion a year to $100 billion in the seven years duration.
Business Recorder
17 hours ago
- Business
- Business Recorder
Pakistan central bank sees FX reserves climbing to over $17bn by FY26 end
KARACHI: State Bank of Pakistan (SBP) Governor Jameel Ahmad projected on Wednesday that the central bank's foreign exchange (FX) reserves were expected to rise by $3 billion, reaching $17.5 billion by the end of the fiscal year 2025-26. The growth in the reserves would take place despite foreign debt repayments, including rollovers, totalling at $25.9 billion in FY26, he added. 'The FX reserves could be higher than the targeted $17.5 billion in FY26 if Pakistan raised new debt from global capital market through selling Eurobond,' Ahmad said at SBP monetary policy press conference. The central bank decided to keep the key interest unchanged at 11%. The FX reserves stood at $14.5 billion at the end of FY25 on June 30, 2025. He anticipated that Pakistan's GDP (gross domestic product) would grow in the range of 3.25% to 4.25% in FY26. It may be noted that the International Monetary Fund (IMF) has projected Pakistan's GDP growth at 3.6% for FY26. The growth would be supported by revival in agricultural output and continue improvement in industrial and services sectors, SBP governor said. The current account deficit is expected to be in the range of 0-1% of GDP in FY26, ending the cycle of C/A surplus recorded in FY25. The Monetary Policy Committee (MPC) of the SBP noted that year-on-year inflation was expected to mostly remain in the range of 5–7 percent in FY26, though it might cross the upper bound in some months. The MPC emphasised that the outlook was susceptible to multiple risks emanating from uncertain global commodity prices and trade outlook, unanticipated adjustments in administered energy prices, and potential widespread floods.
Business Recorder
20 hours ago
- Business
- Business Recorder
SBP keeps policy rate unchanged at 11%
The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) on Wednesday decided to keep the policy rate unchanged at 11%. 'The MPC has decided to maintain the policy rate at 11%,' said SBP Governor Jameel Ahmad while addressing a press conference. The decision contradicts market expectations, which had anticipated a rate cut of around 50 to 100 basis points (bps). The committee noted that inflation in June 2025 decelerated to 3.2% year-on-year, led mainly by lower food prices, whereas core inflation also declined slightly. 'However, the committee noted that the inflation outlook has somewhat worsened in the wake of higher-than-anticipated adjustments in energy prices, especially gas tariffs,' read the MPC statement. 'Nonetheless, inflation is projected to stabilise in the target range going forward. 'Moreover, economic activity is gaining further traction amidst the still-unfolding impact of the earlier reductions in the policy rate.' The committee noted that the trade deficit is expected to widen further in FY26 amidst the pickup in economic activity and slowdown in global trade. 'Given this macroeconomic outlook and the emerging risks, the MPC considered today's decision as necessary to ensure price stability,' it said. The MPC noted the following key developments since its last meeting: 'First, the SBP's FX reserves crossed $14 billion on the back of improved financial inflows and a current account surplus. 'Second, the recent upgrade in Pakistan's sovereign credit rating led to a decline in Eurobond yields and narrowed CDS spreads in international markets. 'Third, inflation expectations increased slightly for consumers but declined for businesses in the latest sentiment surveys. 'Fourth, FBR tax revenue for FY25 was recorded at Rs11.7 trillion, which fell short of the revised estimate by around Rs200 billion. 'Lastly, global oil prices remained volatile, whereas metal prices increased. At the same time, the impact of global trade tariffs remained uncertain, prompting central banks to maintain their cautious monetary policy stance. 'In view of these developments and potential risks, the committee assessed that the real policy rate should continue to be adequately positive to stabilise inflation in the target range of 5 – 7%,' read the statement. The MPC emphasised the need to continue the ongoing prudent monetary and fiscal policy mix to sustain macroeconomic stability. The committee also reiterated its view that without structural reforms, it would be difficult to achieve higher growth on a sustainable basis. Inflation outlook The MPC noted that going forward, energy inflation is expected to rise from current levels amidst the significant upward adjustment in gas tariffs, the phasing out of the temporary reduction in electricity tariffs (for Q4- FY25), and the recent increase in motor fuel prices. 'The MPC noted that y/y inflation is expected to mostly remain in the range of 5 – 7% in FY26, though it may cross the upper bound in some months. 'The MPC emphasised that this outlook is susceptible to multiple risks emanating from uncertain global commodity prices and trade outlook, unanticipated adjustments in administered energy prices, and potential widespread floods,' it said. Meanwhile, during the presser, Governor SBP shared that during the last fiscal year, average headline inflation stood at 4.5%, slightly below the target range of 5–7%. 'Food inflation has reduced significantly, while core inflation has also declined,' he added. Talking about the external account, the SBP chief noted that Pakistan's imports increased significantly from $53 billion in FY24 to $59.1 billion in FY25, reflecting an increase of 11.1%. 'Our non-oil imports have increased by 16%, which indicates broad-based growth in imports.' 'However, the increase in the country's exports remains quite contained compared to remittances,' Ahmad noted. Market expectations At its previous meeting on June 16, 2025, the MPC had also kept the policy rate unchanged at 11%, citing expectations of rising inflation in the coming months. However, market experts had expected the central bank to cut the policy rate by at least 50 basis points (bps) in today's meeting. 'We expect the central bank to announce a cut of 50bps in the upcoming MPC meeting,' Topline Securities had said in an earlier report. The brokerage house was of the view that the SBP had further room for around a 100bps cut, as it expected inflation in FY26 to average between 5-7%, translating into a real rate of 400-600bps. Analysts at Arif Habib Limited (AHL) had also expected the MPC to reduce the policy rate to 10.5%. 'With inflation down, the external position currently in a manageable zone, and yields already on a downward slope, conditions seem ripe for further monetary easing, though some risks cast a shadow,' said AHL. Similarly, a Reuters poll found that the SBP would cut the rate by 50bps to 10.5%, with a unanimous forecast for further easing as inflation slows and external balances improve. Ahmed Mobeen, Senior Economist at S&P Global Market Intelligence, said the SBP was likely to cut rates further but may adopt a more 'cautious' pace in the second half of the year due to rising import demand and global commodity risks. Previous MPC meeting In its June meeting, the MPC kept the policy rate unchanged at 11%, in line with market expectations. The committee, at that time, noted that the increase in inflation in May to 3.5% year-on-year (y/y) was in line with its expectations, whereas core inflation declined marginally. 'Going forward, inflation is expected to trend up and stabilise in the target range during FY26,' it said. The MPC also assessed that economic growth was picking up gradually and was projected to gain further traction next year, supported by the still-unfolding impact of earlier policy rate cuts. Since the last MPC meeting, several key economic developments have occurred. The rupee has appreciated by 0.04%, while petrol prices increased by 5.3%. Internationally, oil prices have declined by nearly 4% since the last MPC, hovering around $69 per barrel. Pakistan's headline inflation clocked in at 3.2% on a year-on-year (YoY) basis in June 2025, a reading lower than that of May 2025, when it had stood at 3.5%, showed Pakistan Bureau of Statistics (PBS) data. In addition, Pakistan's current account (C/A) posted a massive surplus of $2.1 billion during the fiscal year (FY) 2024-25, a sharp contrast to the $2.07 billion deficit recorded in FY24, data released by the SBP showed. Foreign exchange reserves held by the SBP decreased by $69 million on a weekly basis, clocking in at $14.46 billion as of July 18. Total liquid foreign reserves held by the country stood at $19.92 billion. Net foreign reserves held by commercial banks stood at $5.46 billion.
Express Tribune
5 days ago
- Business
- Express Tribune
Rating upgrade sparks Eurobond rally
Listen to article Pakistan's international bonds surged on Friday, following Standard & Poor's upgrade of the country's sovereign credit rating to 'B-' with a stable outlook, marking Pakistan's return to this rating level for the first time since July 2022. The upgrade, driven by improving macroeconomic fundamentals and reduced sovereign default risk, sparked strong investor interest across the yield curve, with notable gains in longer-tenor bonds. According to data from Arif Habib Limited, the 30-year bond maturing in April 2051 led the rally, rising 4.4% day-on-day to trade at $87.10, with a yield-to-maturity (YTM) of 10.3%. The bond has gained 10.9% month-to-date (MTD) and 11.1% calendar year-to-date (CYTD). Similarly, the 30-year March 2036 bond rose 3.9% day-on-day, reaching $87.80, with MTD and CYTD gains of 11.1% and 12.8%, respectively. Among shorter maturities, the seven-year Sukuk (January 2029) rose 2.3% to $91.60 (YTM 7.1%) and the 10-year bond (December 2027) gained 1.5%, closing at $98.02 (YTM 7.8%). Shorter-dated bonds recorded more modest improvements. The five-year bond (April 2026) rose 1.2%, trading at $100.12 with YTM of 5.8%, while the 10-year bond (September 2025) edged up 0.2% to $100.36. This rally continues the upward momentum observed in recent months, reflecting a broader recovery in investor confidence as Pakistan progresses on key macroeconomic fronts, such as external account stabilisation, fiscal consolidation and IMF programme compliance. The Eurobond price trends show a steady recovery from mid-2023 lows, aided by improved external inflows and successful debt rollovers. Meanwhile, the State Bank of Pakistan (SBP) injected a total of Rs2.667 trillion into the financial system through open market operations (OMOs). The liquidity injection primarily consisted of conventional reverse repo operations, amounting to Rs2.345 trillion, with 23 quotes accepted at a rate of 11.01%. In contrast, the Shariah-compliant Mudarabah-based OMO accounted for a smaller share of Rs322 billion, with only two quotes accepted at a higher rate of 11.13%, possibly reflecting different demand dynamics or risk pricing. All accepted bids were for the seven-day tenor, as no bids were received for the 14-day option. This indicates the SBP's focus on short-term liquidity support to manage immediate government fiscal needs. Overall, the conventional operations made up 87.9% of the total injection, while the Islamic liquidity operation contributed 12.1%, highlighting the central bank's dual approach in managing system liquidity while catering to both conventional and Islamic banking sectors. Furthermore, gold prices in Pakistan fell for the second consecutive day on Friday, tracking losses in the international market, where prices dipped amid a stronger US dollar and easing geopolitical concerns following progress in US-EU trade talks, which dampened demand for safe-haven assets. According to the All Pakistan Sarafa Gems and Jewellers Association, the price of 24-karat gold per tola declined Rs2,300 to settle at Rs356,700, while the 10-gram rate dropped Rs1,972 to Rs305,812. The downward movement follows Thursday's sharp drop, when gold per tola lost Rs5,900, closing at Rs359,000. Meanwhile, the Pakistani rupee appreciated 0.27%, or 77 pasia, against the US dollar in the inter-bank market on Friday, closing at Rs283.45 compared to Rs284.22 a day earlier, according to data released by the State Bank of Pakistan (SBP).
