KARACHI: Governor State Bank of Pakistan (SBP) Ashraf Wathra on Saturday said that local economy was facing different challenges despite the macro-economic indicators have showed sustainability during the last financial year.
The SBP kept the policy rates unchanged in the first monetary policy announced in year 2016, slightly against the expectations of analysts who believed in the room for cut in policy rates by at least 50 basis points.
On the occasion of monetary policy announcement, the SBP chief mentioned the challenges facing Pakistan’s economy that included decline in exports due to contraction of trade at the regional and the local levels.
Responding to a question, he said that decline in exports could not be attributed to interest rates of banks for specific schemes but it was a global issue which had been hurting Pakistan as well.
There are challenges to overall economic performance from the declines in the production of cotton and rice.
The monetary policy pointed out that the major macroeconomic indicators continued to exhibit improvements in the first half of the current fiscal year, whereas the inflationary environment stayed benign, large scale manufacturers (LSM) gained traction and fiscal consolidation remained on track.
In addition, successful completion of ninth review under IMF’s EFF and disbursements from multilateral and bilateral sources added to country’s external buffers. With the pickup in private sector credit, for fixed investment in particular, along with improving security situation reflected strengthening of investor and consumer confidence.
The average CPI inflation declined to 2.1 percent during July-December 2015, with perishable food items and motor fuel leading the way. Meanwhile, trend in YoY CPI inflation reversed as it rose for third consecutive month to 3.2 percent in December 2015.
Keeping in view the benign outlook of global commodity prices, expectation of a moderate pickup in domestic demand and further ease in supply side constraints, SBP expected the average inflation in FY16 to remain in the range of 3 to 4 percent. However, global oil price trends and excess domestic food stocks (wheat, rice, and sugar) may exert downward pressures on inflation.
Large-scale manufacturing (LSM) grew by 4.4 percent during Jul-Nov FY16 as compared to 3.1 percent in the same period last year. LSM mainly benefitted from monetary easing, falling international prices of key inputs, better energy situation, increased domestic demand for consumer durables, and expansion of construction activities.
The uptick in economic activity appears to continue beyond FY16 on the back of energy and infrastructure projects under CPEC.
Some stress in liquidity noticed in Q1-FY16 due to increased government borrowing from the scheduled banks steadily eased in Q2-FY16 owing to improved revenue collection and timely receipt of foreign flows.
DAILY TIMES
YEMI
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