Status quo likely as MPC meets amid global uncertainty
The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) will meet shortly for its final session scheduled for the fiscal year, with analysts widely anticipating the central bank to maintain the status quo.
In its last meeting held on May 5, 2025, the MPC cut the policy rate by 100 basis points (bps) to 11%.
This was the lowest policy rate since March 2022 (9.75%). The central bank has cut the rate by 1,100bps since June from an all-time high of 22%.
Market expectations
Market experts expected the central bank to hold the key policy rate at 11%.
'While domestic macroeconomic indicators have improved significantly, particularly inflation and the external account, we believe the central bank is likely to adopt a wait-and-see approach in light of emerging global risks and domestic policy adjustments,' Arif Habib Limited (AHL), a brokerage house, said in its report.
AHL, in its report, was of the view that while the domestic landscape supports an easing bias, recent geopolitical developments have raised the stakes.
'Escalating tensions in key oil-producing regions have triggered a sharp surge in global oil prices. Benchmark crude contracts, including Brent, WTI, and Arab Light, have risen close to 10-12% WoW, with daily spikes exceeding 6% as of the latest reading.
'For an oil-importing economy like Pakistan, this poses direct and indirect inflationary risks,' AHL noted.
Analysts at Topline Securities also believed that the central bank's MPC would observe a status quo as international crude oil prices have rebounded to US$68-70/barrel amidst rising tensions in the Middle East region and an expected US-China deal.
'This warrants a cautious approach from policy makers, in our view, as oil prices' movement has remained a major driver of inflation in past.
'Some of the major notifications are also expected before the start of next fiscal year, i.e. gas price notification, and electricity price notification, among others,' Topline said in its report.
Similarly, a Reuters poll found that the SBP is set to hold its key interest rate at 11% due to geopolitical tension, as analysts cite inflation risks from rising global commodity prices.
'There remains an upside risk of a rise in global commodity prices in light of geopolitical tensions, which could mark a return to inflationary pressures,' said Ahmad Mobeen, senior economist at S&P Global Market Intelligence.
Previous MPC meeting
In its last meeting, the MPC of the central bank cut the policy rate by 100 bps to 11%, contrary to market expectations.
The committee, at that time, noted that inflation declined sharply during March and April, mainly due to a reduction in administered electricity prices and a continued downward trend in food inflation.
'Core inflation also declined in April, primarily reflecting favourable base effects amidst moderate demand conditions.
'Overall, the MPC assessed that the inflation outlook has improved further relative to the previous assessment,' read the statement.
Since the last MPC meeting, several key economic developments have occurred.
The rupee has depreciated by 0.6%, while petrol prices increased by 2.3%.
Internationally, oil prices have significantly jumped by over 25% since the last MPC, hovering around $72 per barrel amid heightened regional tensions.
Pakistan's headline inflation clocked in at 3.5% on a year-on-year basis in May 2025, a reading higher than that of April 2025, when it stood at 0.3%, showed Pakistan Bureau of Statistics (PBS) data.
In addition, Pakistan's current account (C/A) posted a slight surplus of $12 million in April 2025, against a massive surplus of $1.2 billion (revised) last month, data released by the central bank showed. On a year-on-year (YoY) basis, the C/A decreased 96% against a surplus of $315 million (revised) recorded in the same month last year.
Foreign exchange reserves held by the SBP increased by $167 million on a weekly basis, clocking in at $11.68 billion as of June 6.
Total liquid foreign reserves held by the country stood at $16.88 billion. Net foreign reserves held by commercial banks stood at $5.12 billion.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Express Tribune
2 hours ago
- Express Tribune
WB, IMF climate snub 'worrying': COP29 presidency
Participating world leaders and delegates pose for a family photo during the United Nations Climate Change Conference (COP29) in Baku. Photo: AFP The hosts of the most recent UN climate talks are worried international lenders are retreating from their commitments to help boost funding for developing countries' response to global warming. This anxiety has grown as the Trump administration has slashed foreign aid and discouraged US-based development lenders like the World Bank and the International Monetary Fund from focussing on climate finance. Developing nations, excluding China, will need an estimated $1.3 trillion a year by 2035 in financial assistance to transition to renewable energy and climate-proof their economies from increasing weather extremes. But nowhere near this amount has been committed. At last year's UN COP29 summit in Azerbaijan, rich nations agreed to increase climate finance to $300 billion a year by 2035, an amount decried as woefully inadequate. Azerbaijan and Brazil, which is hosting this year's COP30 conference, have launched an initiative to plug the shortfall that includes expectations of "significant" contributions from international lenders. But so far only two — the African Development Bank and the Inter-American Development Bank — have responded to a call to engage the initiative with ideas, said COP29 president Mukhtar Babayev. "We call on their shareholders to urgently help us to address these concerns," he told climate negotiators at a high-level summit in the German city of Bonn this week. "We fear that a complex and volatile global environment is distracting" many of those expected to play a big role in bridging the climate finance gap, he added. His team travelled to Washington in April for the IMF and World Bank's spring meetings hoping to find the same enthusiasm for climate lending they had encountered a year earlier. But instead they found institutions "very much reluctant now to talk about climate at all", said Azerbaijan's top climate negotiator Yalchin Rafiyev. This was a "worrisome trend", he said, given expectations these lenders would extend the finance needed in the absence of other sources. "They're very much needed," he said. The United States, the World Bank's biggest shareholder, has sent a different message. On the sidelines of the April spring meetings, US Treasury Secretary Scott Bessent urged the bank to focus on "dependable technologies" rather than "distortionary climate finance targets." This could mean investing in gas and other fossil fuel-based energy production, he said. Under the Paris Agreement, wealthy developed countries — those most responsible for global warming to date — are obligated to pay climate finance to poorer nations. AFP
Business Recorder
3 hours ago
- Business Recorder
6th China-S Asia Cooperation Forum held in Kunming: Pakistan, China reaffirm commitment to high-quality development of CPEC
ISLAMABAD: Pakistan and China have reaffirmed commitment to the high-quality development of the China-Pakistan Economic Corridor (CPEC), identifying agriculture technology, mines and minerals, industrial parks, offshore oil and gas exploration, environment protection and connectivity as priority areas for win-win cooperation. Both sides committed to fast-tracking implementation of projects in these sectors to foster socio-economic development and shared prosperity, including through third-party participation in CPEC projects. The affirmation comes after Ambassador Imran Ahmed Siddiqui, Additional Secretary (Asia-Pacific) met with Sun Weidong, Vice Foreign Minister of the People's Republic of China, in Kunming on the margins of the 6th China-South Asia Cooperation Forum (CSACF). The additional secretary and vice foreign minister undertook in-depth exchange of views on the fast-evolving regional and global landscape while reaffirming the enduring strength of the Pakistan-China All-Weather Strategic Cooperative Partnership. They agreed on the importance of maintaining strategic communication and coordination in navigating emerging challenges and harnessing shared opportunities for regional stability and prosperity. The two sides also emphasised the imperative of maintaining the momentum of high-level exchanges, including the upcoming 6th Round of Pakistan-China Strategic Dialogue at the Foreign Ministers' level to even further deepen the mutual trust and cooperation. Underscoring their shared commitment to multilateralism, both sides reaffirmed their resolve to coordinate policies at international fora, particularly at the United Nations, to uphold the purposes and principles of the UN Charter and promote an open, inclusive and rules-based international order. Meanwhile, Pakistan participates in the 6th CSACF in Kunming. Ambassador Imran Ahmed Siddiqui, Additional Secretary (Asia-Pacific) addressed the 6th CSACF in Kunming Friday. Speaking at the Forum under the theme, 'Join Hands for Open and Inclusive Development,' the additional secretary underscored Pakistan's unwavering commitment to multilateralism guided by the purposes and principles of the UN Charter and reaffirmed that peace and development are mutually reinforcing pillars for building a stable and prosperous region. Lauding China's leadership in hosting the Forum, Ambassador Siddiqui noted that high-quality development under Belt and Road Initiative (BRI), exemplified by its flagship project of CPEC, has transformed the socio-economic landscape of the region. The additional secretary emphasised that lasting regional peace in the region cannot be achieved without addressing and resolving long-standing disputes, particularly in territories under foreign occupation. He called for adherence to the Five Principles of Peaceful Coexistence centred on respect for sovereignty and territorial integrity, non-aggression, non-interference, equality and peaceful resolution of disputes, as the cornerstone for regional cooperation. The additional secretary also proposed the establishment of China-South Asia Development Forum (CSADF) which can serve as a high-level mechanism to advance practical cooperation in priority areas driving shared prosperity and inclusive development in the region. Copyright Business Recorder, 2025
Business Recorder
4 hours ago
- Business Recorder
BD-China-Pakistan trilateral mechanism: Beijing hosts inaugural conference
ISLAMABAD: In a positive development, Beijing hosted an inaugural conference of Bangladesh-China-Pakistan Trilateral Mechanism, during which the three sides agreed to establish a joint working group (JWG) to implement the understandings reached during the meeting to boost cooperation in the field of trade, investment and agriculture. The three sides also agreed that trilateral cooperation would be guided by the principles of openness, inclusivity, good neighbourliness, mutual respect and trust, while working towards win-win cooperation. According to statement issued by Pakistan's Foreign Office (FO) Spokesperson, Bangladesh-China-Pakistan Vice Foreign Minister/Foreign Secretary meeting was held in Kunming, Yunnan province of China. Team comprising over dozen Chinese companies arrives in Pakistan Chinese Vice Foreign Minister Sun Weidong, Bangladeshi Acting Foreign Secretary Ruhul Alam Siddique and Additional Foreign Secretary of Pakistan Imran Ahmed Siddiqui attended the meeting. Pakistani Foreign Secretary Amna Baloch participated in the first phase of the meeting via video link. In her remarks, Foreign Secretary Ambassador Baloch commended the Chinese side for convening the inaugural meeting of the trilateral mechanism. Noting the common aspirations of the three sides for people-centric development, the foreign secretary expressed Pakistan's desire for a deeper engagement between China and South Asian countries. Expressing satisfaction at the upward trajectory of bilateral ties, the foreign secretary conveyed Pakistan's readiness to work with China and Bangladesh to enhance ties in trade and investment, agriculture, digital economy, environment protection, marine sciences, green infrastructure, culture, education and people-to-people exchanges. Pakistan, Bangladesh resume direct trade after more than 50 years It is noteworthy that relations between Pakistan and Bangladesh have drastically improved since the ouster of pro-India Premier Sheikh Hasina Wajid in August last year. Both Islamabad and Dhaka agreed to strengthen diplomatic and trade ties with high level meetings between the leaderships of the two countries and exchanges of delegations. Beijing had also hosted an informal trilateral meeting of Pakistan, Afghanistan and China last month, which helped normalised strained relation between Islamabad and Kabul. Both Pakistan and Afghanistan have agreed to elevate diplomatic status by upgrading of chargé d'affaires to the level of Ambassador. The Foreign Office spokesperson said that Islamabad and Kabul have exchanged the diplomatic documents for the formal appointment of full-fledged ambassadors in each other's country. Pakistan's chargé d'affaires in Kabul Obaidullah Niazamani has been upgraded to the level of Ambassador while Sardar Shakeeb's status has also been elevated to Ambassador. Copyright Business Recorder, 2025
