Pakistan’s tough decisions on economy to pay dividends: Fitch

Assasin's

MPA (400+ posts)



نیویارک:
امریکی ریسرچ ادارے فیچ سلوشنز نے پیشگوئی کی ہے کہ پاکستانی حکومت نے گذشتہ ہفتے دو مشکل فیصلے کئے جس سے پاکستان کی معیشت میں جلد بہتری آئے گی۔


غیرملکی خبررساں ادارے کے مطابق امریکی ریسرچ کے ادارے فیچ سلوشنز نے امید ظاہر کی ہے کہ پاکستانی حکومت نے گذشتہ ہفتے دو مشکل فیصلے کئے جس سے پاکستان کی معیشت میں بہت جلد ہی بہتری کا امکان ہے۔ ان دو فیصلوں میں ڈالر کے مقابلے میں روپے کی قدر میں 7.5 فیصد کمی اور 8 سال میں اسٹیٹ بینک کا شرح سود میں 1.5 فیصد اضافہ کرکے اسے 12 اعشاریہ 25 فیصد کرنا شامل ہے۔

فیچ سلوشنز کے مطابق شرح سود بڑھانے سے افراط زر میں آنے والے ماہ میں استحکام آئے گا، روپے کی قدر اور درآمد شدہ سامان کی قیمتیں بھی بہتر ہوں گی اور پاکستان کی معیشت میں استحکام آئے گا۔


KARACHI: Fitch Solutions, a US-based global research house, expects stability to return in Pakistan’s economy after the government making two tough decisions in the past week.

The two steps taken by the government include the aggressive key interest rate hike by 1.5 percentage points to 91-month (eight years) high at 12.25% on Monday and the 7.5% depreciation in rupee in the past few days to Rs151.95 against the US dollar in the interbank market on Wednesday.

“The aggressive pre-emptive hike will help to cool inflationary pressures over the coming months,” the research house said in a commentary.

“The 150 basis points interest rate hike will likely support a stabilisation in inflation over the coming months,” it noted.

The inflation will remain in single digit at 7% in the ongoing fiscal year and tough decisions will help offset the impact of higher international oil prices in the domestic economy.

The research house foresaw no further rate hikes during the remaining seven months of the current year. “Given our expectation for inflation to stabilise, we at Fitch Solutions forecast the SBP to maintain its benchmark interest rate at 12.25% throughout 2019,” it said.

The rate hike followed Pakistan’s agreement with the International Monetary Fund (IMF) on a bailout package (worth $6 billion) on May 12.

According to the SBP’s monetary policy statement, the rate-hike decision was driven by underlying inflationary pressures from higher recent month-on-month headline and core inflation, the recent exchange rate depreciation, an elevated fiscal deficit and its increased monetization and potential adjustments in utility tariffs.

Rupee stability

Fitch Solutions also anticipated a return of stability in the rupee-dollar exchange rate following the real interest rate strengthening to 3.5%.

“The interest rate hike has brought the real interest rate firmly into a positive territory of around 3.5%, which should help to stabilise the rupee and hence the prices of imported goods.”

FDI drops 52% as economic uncertainty bites

Fitch Solutions had predicted rupee deprecating to Rs148 against the greenback last Friday (May 17) in its commentary.

Negative fallouts

On the flip side, the rate hike and rupee depreciation decisions will discourage new investment in the country and there will be further economic slowdown, according


to Fitch Solutions.


The research house said it was considering revising down Pakistan’s rate of gross domestic product (GDP) to factor-in possible impact of the recent two decisions soon.

“Given the aggressive hike in interest rates, we believe that Pakistan’s GDP growth is set to slow over the near term. In addition to the likely fiscal consolidation measures agreed as part of the IMF Extended Fund Facility deal, the 150bps interest rate hike will discourage investment as well as consumer spending,” it noted.

“We forecasted the real GDP growth to slow from 5.4% in the fiscal year 2017-18 to 4.4% in the fiscal year 2018-19, but will be revising down our forecast within the coming weeks.”

The combination of rising interest rates and slowing economic growth will also discourage private sector borrowing which should also help in curbing inflationary pressures.

Commercial banks

The research house observed that with a weaker demand for credit from the private sector, commercial banks could be more willing to lend to the government at the new higher interest rate, thereby potentially improving the transmission mechanism of monetary policy.

Given the higher costs of borrowing and the likely reduction of public spending following the finalisation of the IMF deal, credit growth to the government (which rose by 14.5% year-on-year in April from 11.8% year-on-year in April) is likely to slow down.

Moreover, there is a chance that the interest rate hike could improve the interest rate transmission mechanism in the economy. According to the SBP, the government’s heavy reliance on the SBP for funding was because of the reluctance of the commercial banks to lend to the government, which had “diluted the impact of previous monetary tightening”.

 
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lala123

Voter (50+ posts)
Joke report. Interest rates are lowest in US in times of depression. This will further destroy economy.
 

lala123

Voter (50+ posts)
It has same dynamics. You can enact principles from Mars in Youthiastan. Disastrous policies which PTI members not willing to understand since they foolishly worship IK and cannot think that he could do anything wrong. In reality IK has turned out to be a disaster.

Most people will stop investing in businesses and will store money in banks due to higher returns. Housing will become more expensive.

Moreover, Fitch was publishing pro Nawaz articles during his tenure. IK is totally destroying economy by devaluing currency and increasing interest rates.
 
Last edited:

shafali

Minister (2k+ posts)
KARACHI: Fitch Solutions, a US-based global research house, expects stability to return in Pakistan’s economy after the government making two tough decisions in the past week.



The two steps taken by the government include the aggressive key interest rate hike by 1.5 percentage points to 91-month (eight years) high at 12.25% on Monday and the 7.5% depreciation in rupee in the past few days to Rs151.95 against the US dollar in the interbank market on Wednesday.

“The aggressive pre-emptive hike will help to cool inflationary pressures over the coming months,” the research house said in a commentary.

“The 150 basis points interest rate hike will likely support a stabilisation in inflation over the coming months,” it noted.

The inflation will remain in single digit at 7% in the ongoing fiscal year and tough decisions will help offset the impact of higher international oil prices in the domestic economy.

The research house foresaw no further rate hikes during the remaining seven months of the current year. “Given our expectation for inflation to stabilise, we at Fitch Solutions forecast the SBP to maintain its benchmark interest rate at 12.25% throughout 2019,” it said.

The rate hike followed Pakistan’s agreement with the International Monetary Fund (IMF) on a bailout package (worth $6 billion) on May 12.

According to the SBP’s monetary policy statement, the rate-hike decision was driven by underlying inflationary pressures from higher recent month-on-month headline and core inflation, the recent exchange rate depreciation, an elevated fiscal deficit and its increased monetization and potential adjustments in utility tariffs.

Rupee stability

Fitch Solutions also anticipated a return of stability in the rupee-dollar exchange rate following the real interest rate strengthening to 3.5%.

“The interest rate hike has brought the real interest rate firmly into a positive territory of around 3.5%, which should help to stabilise the rupee and hence the prices of imported goods.”

Fitch Solutions had predicted rupee deprecating to Rs148 against the greenback last Friday (May 17) in its commentary.

Negative fallouts

On the flip side, the rate hike and rupee depreciation decisions will discourage new investment in the country and there will be further economic slowdown, according to Fitch Solutions.

The research house said it was considering revising down Pakistan’s rate of gross domestic product (GDP) to factor-in possible impact of the recent two decisions soon.

“Given the aggressive hike in interest rates, we believe that Pakistan’s GDP growth is set to slow over the near term. In addition to the likely fiscal consolidation measures agreed as part of the IMF Extended Fund Facility deal, the 150bps interest rate hike will discourage investment as well as consumer spending,” it noted.

“We forecasted the real GDP growth to slow from 5.4% in the fiscal year 2017-18 to 4.4% in the fiscal year 2018-19, but will be revising down our forecast within the coming weeks.”

The combination of rising interest rates and slowing economic growth will also discourage private sector borrowing which should also help in curbing inflationary pressures.

Commercial banks

The research house observed that with a weaker demand for credit from the private sector, commercial banks could be more willing to lend to the government at the new higher interest rate, thereby potentially improving the transmission mechanism of monetary policy.

Given the higher costs of borrowing and the likely reduction of public spending following the finalisation of the IMF deal, credit growth to the government (which rose by 14.5% year-on-year in April from 11.8% year-on-year in April) is likely to slow down.

Moreover, there is a chance that the interest rate hike could improve the interest rate transmission mechanism in the economy. According to the SBP, the government’s heavy reliance on the SBP for funding was because of the reluctance of the commercial banks to lend to the government, which had “diluted the impact of previous monetary tightening”.

 

Samlee

Senator (1k+ posts)
It has same dynamics. You can enact principles from Mars in Youthiastan. Disastrous policies which PTI members not willing to understand since they foolishly worship IK and cannot think that he could do anything wrong. In reality IK has turned out to be a disaster.

Most people will stop investing in businesses and will store money in banks due to higher returns. Housing will become more expensive.

Moreover, Fitch was publishing pro Nawaz articles during his tenure. IK is totally destroying economy by devaluing currency and increasing interest rates.

OK Explain What Those Disastrous Policies Are????????
 

Zainsha

Minister (2k+ posts)
yeh eik aur aya naya rangroot chuNtiya arastoo.. haram kay pillay agar Nawaz behtareen hukumraan tha to aaj Pakistan pe itna qarza kyon hai? Musharraf kay dorr main dollar 60 ka tha.. nawaz dallay kay dorr main 110 ka.. agar dollar ki price se judge karna hai to nawaz soo er to imran se bhi badd tarr hukumraan tha..
 

crankthskunk

Siasat.pk - Blogger
Joke report. Interest rates are lowest in US in times of depression. This will further destroy economy.
I have seen interest rates touching 11% in the west too. So don't me damned.
The problem with Pakistanis is that they are not educated. Most of its media is in the hands of crooks who don't understand economy at all, but open their shops every evening to portion blames like there is no better economic expert than them.

Dar has screwed Pakistan that nobody understand in Pakistan bar few who are economic experts.
Despite not knowing, the "Takla" baldy Nadeem Malik is simmering in utter hate that people point at him for his "ridiculous" brand of journalism. He has convinced himself by opening his shop every evening he has become an economic expert of a sort.

Khootee de putar ne sare.
 

chandaa

Chief Minister (5k+ posts)
Unpopular but right decisions by Imran Khan and team, otherwise we had a MUNSHI who used to forge the numbers and his only job was to launder money in offshore accounts of Aal e Shar.
 
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