Who cares what the
State Bank
has to say any more?
The SBP has to put money where its mouth is to make the market believe it By Ariba Shahid
D
oes anyone even care what the State Bank of Pakistan says any more? We asked around and it looks like nobody really does anymore. Not in the markets anyway.The SBP had been on an extensive spree trying to get the right message out, however, eventually they had to calm the markets through its actions. Earlier this week on Tuesday, the Monetary Policy Committee (MPC) at the State Bank of Pakistan (SBP) announced a 100 bps policy rate hike, bringing the policy rate to 9.75%. Within the span of 25 days, there have been two hikes of a cumulative total of 250 bps. The impact of the policy rate hits the debt market. However, as of late, the debt market was and probably still is practically calling the shots getting in ahead of the central bank. As one might imagine, this has rubbed neither the ministry of finance nor the central bank the right way. “Following today’s rate increase and given the current outlook for the economy, and in particular for inflation and the current account, the MPC felt that the end goal of mildly positive real interest rates on a forward-looking basis was now close to being achieved. Looking ahead, the MPC expects monetary policy settings to remain broadly unchanged in the
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near-term,” the SBP said in a statement. This seemed like an attempt to make the markets believe in the fact that the MPC felt that they were close to their goal of mildly positive interest rates. The move was meant to reduce uncertainty, especially at a time when debt markets have been “bullying” the government (Shaukat Tarin’s words, not ours). The finance minister had said that the banks had a dressing down for being too greedy. The irony of that statement is not lost on any of us. Moreover, the MPC took this a step forward and said that the uncertainty and reaction of market players as “unwarranted”. The statement reads, “across all tenors, secondary market yields, benchmark rates and cut-off rates in the government’s auctions have risen significantly. The MPC noted that this increase appeared unwarranted.” On Tuesday night, Reza Baqir, the Governor State Bank of Pakistan, went live on Aaj Shahzeb Khanzada Kay Saath where he said categorically that Pakistan is not headed towards a situation where the interest rate in the country could surge to 13.52%. “The last time Pakistan faced such a situation was when there was a severe financial crisis in the country, when the CAD was around $19bn,” he explained. “We are going to take a pause to first look at the effects of the tightening that we have already done, and then we will consider what monetary policy settings should
be afterwards,” he said later in the week while talking to Yvonne Man and Rishaad Salamat on ‘Bloomberg Markets: Asia’.
The regulated regulate the regulator
O
ne would wonder why the market isnt taking the SBPs words seriously. Why wouldn’t they? Immediately after announcing the one percentage point hike in the discount rate, the Governor SBP was called into an unscheduled meeting with the Prime Minister. As a result he was absent from a crucial conference call that the central bank holds with bondholders and analysts following every policy rate announcement. His Deputy, Murtaza Syed took up the job and conducted the entire session until near the end when the Governor joined just in time to take two questions after the main presentation had ended. The video has been uploaded online. “The Governor is in a meeting with the Prime Minister right now and will try to join us before the call is through,” said Murtaza Syed, Deputy Governor SBP as he began the presentation. While one is not entirely sure why the PM summoned the governor on such short notice at such a time, one has to wonder what was so pressing that couldn’t wait. Then again, when the PM calls, you’re supposed to answer - no questions asked.
