Monetary Policy












 About Monetary Policy

Monetary policy involves central banks’ use of instruments to influence interest rates and/or money supply in the economy with the objective to keep overall prices and financial markets stable. Monetary policy is essentially a stabilization or demand management policy that cannot impact long-term growth potential of an economy. Preamble to SBP Act, 1956 envisages monetary policy to secure monetary stability and attain fuller utilization of economy’s productive resources. In SBP’s view, the best way to achieve these objectives on a sustainable basis is to keep inflation low and stable.

Low and stable inflation provides favorable conditions for sustainable growth and employment generation over time. It reduces uncertainties about future prices of goods and services and helps households and businesses to make economically important decisions such as consumption, savings and investments with more confidence. This, in turn, facilitates higher growth and creates employment opportunities over the medium term leading to overall economic well-being in the country.

In practice, SBP’s monetary policy strives to strike a balance among multiple and often competing considerations. These include: controlling inflation, ensuring payment system and financial stability, preserving foreign exchange reserves, and supporting private investment.

How does Monetary Policy Work?
SBP signals its monetary policy stance through adjustments in the policy rate; that is, the SBP Target Rate for the overnight money market repo rate. Changes in the policy rate impact demand in the economy through several channels and with a lag. In the first place, changes in policy rate influence the interest rates determined in the interbank market at which financial institutions lend or borrow from each other. The market interest rates are also influenced by central bank interventions in money and foreign exchange markets as well as by its communication.

The changes in market interest rates influence the borrowing cost for consumers and businesses as well as the return on deposits for the savers. Generally, lower interest rates encourage people to save less and consume/invest more, and vice versa. Changes in the policy rate also influence the value of financial and real assets, impacting people’s wealth and thus their spending. The adjustment in demand finally affects the general price level and thus inflation in the economy.


For more details see: Transmission Mechanism of Monetary Policy




  •  
    SBP Policy Rate
    5.75% p.a.
     
    SBP Overnight
    Reverse
    Repo (Ceiling) Rate
    6.25% p.a.
     
    SBP Overnight
    Repo (Floor) Rate
    4.25% p.a.
  •  
    Overnight Weighted Average Repo Rate
    As on 16-Feb-17
    5.99 % p.a.
     
    KIBOR
    As on 17-Feb-17
    Tenor BID OFFER
    3-M 5.84 6.09
    6-M 5.89 6.14
    12-M 5.90 6.40

  •  
    MTBs
    Tenor Rates
    3-M 5.9463%
    6-M 5.9896%
    12-M 5.9935%
    PIBs
    Tenor Rates
    3-Y 6.4074%
    5-Y 6.8998%
    10-Y 7.9414%
    20-Y Bid not received


    GIS

    Cut-off Margin over Benchmark*:  
    -50 bps

    * Latest 6-M W.A MTB Rate


  • MTB Auction

    01-Mar-17

     
    PIB Auction

    22-Feb-17

     
    As on 10-Feb-17
    SBP’s Reserves
    16,993.4
    Bank’s Reserves
    4,831.1
    Total Reserves
    21,824.5

  •  
    USD/PKR Rates
    As on 17-Feb-17
     
    M2M
    Revaluation Rate
    104.8285
     
    Weighted
    Average Rate
    Bid: 104.7398
    Offer: 104.9252
       
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