Monetary Policy


Frequently Asked Questions
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Glossary of Key Economic Terms

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   Glossary of Key Economic Terms

Balance of payments (BoP) is a statistical statement for a given time period showing economic transactions between residents of the reporting economy with the non-residents.

Balance of trade or trade balance is the difference between the monetary value of exports and imports of an economy for a specified time period.

Broad money (M2) is one of the various ways to measure the money supply. From liability side, it is measured as a sum of currency in circulation; total deposits of non-government sector, including residents’ foreign currency deposits; and other deposits with SBP. From asset side, M2 is a sum of net domestic assets and net foreign assets of the banking system (i.e. SBP and scheduled banks).

Call rate is the rate on short-term loans among scheduled banks (ranging from overnight up to fourteen days) that do not require collateral.

Capital and financial account balance consists of net flows of capital, the long-term funds, both on government and private accounts; direct foreign investment. It also includes medium and long-term external debt of the private sector and the government from bilateral, multilateral, commercial sources, grants and assistance items.

Capital market is that segment of financial markets where lenders and borrowers meet for long term investments through debt and/or equity financing. It consists of bond markets and stock markets.

Cash in vault (or tills) is the currency held by the scheduled banks in order to meet day-to-day cash requirements of their customers.

Cash reserve requirement (CRR) is the proportion of total demand liabilities (including time deposits with tenor of less than 1 year) that scheduled banks are required to maintain with SBP in the form of cash on both daily basis and 14-day average basis.

Clean rate is the rate on short-term loans at which financial institutions lend/borrow among themselves without any underlying collateral.

Consumer price index (CPI) is main measure of price changes at retail level. It measures the changes in the cost of buying representative predefined basket of goods and services and to gauge the increase in the cost of living in reporting period.

Contractionary monetary policy refers to central bank’s actions aiming to reduce system’s liquidity or to increase policy rate and thereby other interest rates. The contractionary monetary policy, which is also known as monetary tightening or tight monetary policy stance, is generally adopted by SBP to contain inflationary pressures in the economy.

Core inflation is defined as a persistent or underlying long-term component of inflation and is generally computed by excluding certain items that face volatility in their prices.

Coupon rate is the interest rate payable on bond’s par value at specific regular periods. For instance, in case of Pakistan Investment Bonds returns on coupon rate are paid on biannual basis.

Credit is a financial agreement in which a borrower receives a sum of money (or asset) that is agreed to be paid back in a future date, generally with an added interest amount.

Current account is a record of all transactions in the balance of payments covering the exports and imports of goods and services, payments of income, and current transfers between residents and nonresidents.

Currency in circulation refers to currency held by public i.e. currency outside the banking system.

Current deposits refer to deposits in a bank account without any maturity date and generally banks pay no return on these deposits.

Cut-off rate is the interest rate decided by the Ministry of Finance at or below which the bids for government papers (T-bills, PIBs) are accepted in the primary auctions of government securities.

Debt refers to outstanding financial liabilities arising from past borrowings. Debt may be owed to external or domestic creditors and typically, debt financing is in the form of loans or bonds.

Debt rescheduling is undertaken through an agreement between the borrower and the creditor to re-arrange the schedule of principle and interest payments due on the debt outstanding. Rescheduling agreement may also include provisions for debt relief to enable the borrower to regain its financial strength to service the rescheduled debt obligation.

Debt servicing refers to scheduled payments of interest and principal amounts (amortization) due on the outstanding amount of debt during a specific period.

Deflation is a decrease in general price level in an economy over time; i.e., the decline in a price index over a specific period of time.

Depreciation of currency refers to decrease in value of the domestic currency vis-à-vis foreign currency due to changes in demand and supply of the foreign exchange. Currency depreciation required the buyers of foreign exchange to pay more domestic currency units to buy a unit of foreign currency than before.

Direct tax is a tax levied directly on the taxpayer such as income and property taxes.

Domestic debt refers to the debt owed to creditors resident in the same country as the debtor. It can be of sovereign nature, i.e., borrowed by a government or non-sovereign, i.e., borrowed by the corporate. Sovereign domestic debt in Pakistan is further classified into three main categories: permanent debt, floating debt and unfunded debt.

Economic growth is the increase in economic activity during a particular period, normally a year, measured as percentage change in GDP (or GNP) of a country.

Excess (cash) reserve is the amount of cash held by banks, with SBP, over and above the cash reserve requirements. In general, increase in excess reserve indicates easy market liquidity conditions, and vice versa.

Exchange rate is the value of a unit of foreign currency in terms of domestic currency, or vice versa.

Expansionary monetary policy refers to central bank actions’ aiming to increase system’s liquidity or lower policy rate thereby reducing other interest rates. Expansionary monetary policy, also known as monetary easing or adopting a loose monetary policy stance, is generally used to stimulate economic activity during recession.

External debt , at any given time, is the outstanding amount of those liabilities that require payment(s) of principal and interest by the debtor at some point(s) in the future and that are owed to nonresidents by the residents of an economy.

Face value is the value of a bond that is redeemed to the owner/subscriber of that security at the time of maturity.

Financial account is part of overall Balance of Payment that records all transactions associated with changes of ownership in foreign financial assets and liabilities.

Fixed deposits are the deposits having fixed maturity dates and a rate of return determined by the bank.

Floating domestic debt of government consists of short-term borrowing in the form of T-bills.

Foreign direct investment refers to t he acquisition of at least ten percent of the ordinary shares or voting power in a public or private enterprise by nonresident investors. Direct investment involves a lasting interest in the management of an enterprise and includes reinvestment of profits.

Foreign exchange market is the segment of the financial markets that deals with the trading of foreign currency among various market players like banks, exchange companies, central bank, investment management firms, brokerage houses and other corporate concerns.

Foreign exchange net open position of a bank is the difference between bank’s foreign currency assets and liabilities at a given point in time. When the assets are in excess, the NOP is long, and when liabilities are in excess, NOP is short.

Foreign exchange reserves are the c laims of the banking system on nonresidents, including central bank’s holding of gold, SDRs, foreign currencies, deposits in foreign exchange abroad, investments in debt instruments of other countries, and the country's reserve position in the IMF.

Foreign exchange (forex) swap is a contract between two parties to exchange two currencies at an agreed exchange rate and reverse the transaction at a certain point in time in future at an agreed exchange rate.

Foreign inflows are the country’s total receipts in foreign exchange irrespective of the source such as exports, remittances, foreign investment or loans.

Gross domestic product (GDP) represents the total value of final goods and services produced within a country during a specified time period, such as a fiscal year. It is the most commonly used single measure of a country's overall economic activity.

Gross national product (GNP) is the value of all the goods and services produced in an economy, plus net factor income from abroad.

GNP per capita is calculated by dividing total GNP by total population of the country and shows the income earned per head or value of goods and services produced per head during a particular year by an individual of the country.

Hyperinflation is a rapid increase in general price level. There is no consensus on the rise in price level that is considered as hyperinflation. Inflation rate of greater than 50 percent per month is thought of as hyperinflation in some literature.

Indirect tax is a tax levied on goods or services rather than individuals and is ultimately paid by consumers in the form of higher prices such as sales tax or value added tax.

Inflation is a sustained increase in average prices of goods and services in an economy over time. Inflation also means loss in the value of money i.e. the quantity of goods and services that can be purchased with a certain amount of money.

Interbank market is the market where financial institutions trade financial assets or cash amongst themselves.

Interest rate is the price that is paid to convert future income to current consumption or an incentive to postpone current consumption for higher consumption in future. Simply, it is the rate charged by the lender to the borrower for the use of money for a specific period of time, usually expressed on annual terms.

Investment, from the perspective of the domestic economy is the purchase of capital equipment, e.g., machines and computers, and the construction of fixed capital, e.g., factories, roads, housing, that serve to raise the level of output in the future.

Karachi inter-bank offered rate (KIBOR) are i nterbank clean (without collateral) lending/borrowing rates quoted by the banks on Reuters. The banks under this arrangement quote these rates at specified time i.e. 11:30 am at Reuters. Currently 20 banks are members of KIBOR club and, by excluding 4 upper and 4 lower extreme, rates are averaged out and quoted for both ends viz: offer as well as bid. The tenors available in KIBOR are one week to 3 years. KIBOR is used as a benchmark for corporate lending rates.

Market related treasury bills (MRTBs) are treasury bills of 6-month tenor through which government borrows from SBP at the weighted average rate of 6-month T-bill decided in the latest primary auction.

Market treasury bills (MTBs) are the short term debt instruments of the Government of Pakistan with tenors available in 3, 6 and 12 months. They are sold through Primary Dealers in auctions held on fortnightly basis. They are zero-coupon securities and are sold at discount.

Money refers to anything that is generally accepted in exchange as payment for goods and services. The key functions of money are to act as a medium of exchange, store of value, unit of account, and standard of deferred payment.

Money market is the segment of financial markets where banks and non-bank financial institutions lend or borrow funds in local currency amongst themselves for short period.

Money multiplier is the ratio of stock of broad money (M2) to the stock of reserve money or monetary base (M0). It tells us what multiple of the monetary base is transformed into the money supply.

Multiple price auction is an auction mechanism in which successful bidders pay the price equivalent to the rate or yield they bid.

Narrow money (M1) is an indicator used to measure money supply in the economy and includes currency notes in circulation, other deposits with State Bank of Pakistan, and demand deposits (including resident foreign currency deposits) with scheduled banks.

Nominal anchor is an economic variable that relatively quickly adjust to changes in monetary policy instruments and have a predictable relationship with the ultimate policy objectives, such as inflation and economic growth.

Nominal effective exchange rate ( NEER) is an index representing the relative nominal value of one country’s currency compared with the combined effect of weighted basket of currencies of its major trading partners. The weight is determined as home country’s share in imports, exports or total foreign trade with major trading partners.

Output gap is the difference between actual output of the economy and the output that could be achieved by efficiently utilizing all available resources (also termed as potential output)—that is when the economy is operating at its full capacity.

Outright OMO is a transaction whereby government securities (mainly T-bills) are bought or sold by SBP for a tenor equal to remaining maturity of the securities.

Pakistan investment bonds (PIBs) are the long term debt instruments of the government of Pakistan with tenors available in the range of 3 to 20 years. PIBs are sold through primary dealers (i.e., institutions appointed by the SBP to participate in government securities primary auctions) in auctions as and when announced (on quarterly basis). These are coupon bearing instruments and issued in scrip less (without physical) form. Interest on PIBs is paid on biannual basis.

Pakistan revaluation (PKRV) rate is average of the yield-to-maturity on government securities traded in the secondary market and determined at the end of day. The yield-to-maturity on government securities is quoted by the six brokerage houses keeping in view the yield-to-maturity on government securities traded in the secondary market. These brokers are selected by Financial Market Association of Pakistan. PKRV is used by banks and other institutions to revalue their holdings of government securities on a daily basis.

Permanent debt includes medium and long-term debt such as Pakistan Investment Bonds (PIB) and prize bonds.

Potential output or productive capacity of the economy is the maximum amount of goods and services that can be produced by a country by utilizing all of its resources, i.e. labor, capital equipment, time, natural resources, and technology, etc. Alternatively, it shows the level of output which can be sustained in the long run.

Primary dealers are the list of financial institutions that are eligible to participate in the primary market of auction of government securities.

Primary market – the market that deals with the issuance of new securities and bonds, such as the auctions of T-Bills, PIBs and Ijara Sukuk, to a select group of banks and non-banks, known as primary dealers.

Public sector enterprises (PSEs) are the organizations that are controlled by the government, exercised through ownership of more than half the voting shares, legislation, decree, or regulations that establish specific corporate policy or allow the government to appoint the directors and providing goods & services on a market basis.

Purchasing power parity is a theory which relates changes in the nominal exchange rate between two countries’ currencies to changes in their price levels. The purchasing power parity theory suggests that an increase in a currency's domestic purchasing power will be associated with a proportional currency appreciation, and that a decrease will be associated with a proportional currency depreciation.

Real appreciation is an increase in the real exchange rate, due to changes in domestic prices, foreign prices, or the nominal exchange rate, as a result of which the price of domestic goods increases relative to the price of foreign goods. In other words, when a unit of domestic good can be exchanged with more units of a foreign good, this is called real appreciation.

Real depreciation is a decrease in the real exchange rate, due to changes in domestic prices, foreign prices, or the nominal exchange rate, as a result of which the price of domestic goods decreases relative to the price of foreign goods. In other words, when a unit of domestic good can be exchanged with less units of a foreign good, this is called real depreciation.

Real effective exchange rate (REER) is an index used to determine the relative value of one country’s currency compared with the combined effect of weighted basket of currencies of its major trading partners as adjusted for the effects of inflation.

Real interest rate is nominal interest rate minus expected inflation for a year ahead.

Realized value is the amount received by a borrower against issuance of a debt instrument. For example, the discounted value of a treasury bill sold in an auction is the realized value of this security for the government.

Repo rate is the interest rate at which scheduled banks lend/borrow among themselves against approved government securities (T-bills and PIBs).

Repo transaction is the simultaneous sale of securities (such as T-bills and PIBs) with an agreement to purchase it back in future at a predetermined date and price.

Reserve money (M0) is a measure of money supply in the economy. From liability side it includes currency in circulation (held with Public), other deposits with State Bank of Pakistan; currency in tills of schedules banks, and bank deposits with SBP to meet cash reserve requirements. From assets side, M0 is used to measure the most liquid assets which can be spent most easily. M0 is sometimes referred to as the monetary base.

Reverse repo transaction is the reverse of the repo transaction. It is defined as the simultaneous purchase of securities with an agreement to sell it back in future at a predetermined date and price.

Secondary market is the market that deals with trading of bonds and securities already issued through primary auctions or initial public offering (IPO).

Sensitive price indicator (SPI) is computed on weekly basis to assess the price movements of essential commodities at short intervals so as to review the price situation in the country.

Sovereign debt: A debt instrument issued by a sovereign. Most sovereign debt takes the form of bonds.

Term finance certificates (TFCs) are the debt instrument issued by corporate sector to meet a part of their long-term financing needs.

Terms of trade shows the change in the average price of a country’s aggregate exports in relation to the change in average price of its imports.

Time inconsistency problem is a condition in which preference of an entity changes over time and becomes inconsistent with the decisions taken at a prior time period. For instance, a good example is of a central bank that signals the market that it would hike the policy rate in case of high inflation. However, when such a situation arises, it reneges to its commitment to take that decision.

Unfunded debt refers to outstanding debt raised by the government through various national saving schemes (excluding prize bonds).

Uniform price auction (or fixed rate tender)is an auction mechanism in which the cut-off rate of auction is applicable for all the bids received in that auction, for e.g. GoP Ijara Sukuk.

Variable rate tenders refers to a tender procedure whereby the counterparties bid both the amount of money they want to transact with the central bank and the interest rate at which they want to enter into the transaction.

Weighted average deposit rate is the weighted average of interest rates on deposits (demand deposits, time deposits, and resident foreign currency deposits) using share of corresponding deposit amount to total deposits as weight.

Weighted average lending rate is the weighted average of interest rates charged by banks on loans using share of the corresponding loan amount to total loans as weight.

Weighted average money market overnight repo rate is the weighted average of interest rates on overnight repo transactions, using share of respective transactions in total amount as weights.

Wholesale price index(WPI) is designed to measure the changes in prices of a set of selected items in the primary and wholesale markets. Items covered in the series are those, which could be precisely defined and are offered in lots by producers/manufacturers. Prices used are generally those, which conform to the primary sellers realization at ex-mandi (market), ex-factory or at an organized wholesale level.

Workers’ remittances are current transfers for family maintenance by migrants who are employed and residents in other countries. (A resident is a person who stays, or is expected to stay for a year or more in an economy.)

Yield curve is the graphical representation of relationship between the interest rate and the maturity time of a given debt instrument. Typically, the yield curve is upward sloping which means that assets with longer term maturity will be associated with higher interest rates.

    SBP Policy Rate
    16.00% p.a.
    SBP Overnight
    Repo (Ceiling) Rate
    17.00% p.a
    SBP Overnight
    Repo (Floor) Rate
    15.00% p.a.
    Weighted-average Overnight Repo Rate
    As on 02-Dec-22

    15.27% p.a.
    As on 05-Dec-22
    Tenor BID OFFER
    3-M 16.66 16.91
    6-M 16.72


    12-M 16.75 17.25

  • MTBs
    Tenor Rates
    3-M 16.9999%
    6-M 16.8000%
    12-M 16.8401%
    (as on Nov 30, 2022)

    PIBs (Fixed Rate)

    Tenor Cut-off Rates
    3-Y Bids Rejected
    5-Y 13.3500%
    10-Y Bids Rejected
    15-Y No Bid Received
    20-Y No Bid Received
    30-Y No Bid Received
    (as on Nov 29, 2022)

    PIBs (Floating Rate Quarterly)

    Tenor Cut-off Price
    2-Y Rs. 98.9379
    3-Y Bids Rejected
    (as on Nov 30, 2022)
    PIBs (Floating Rate Semi Annual)
    Tenor Cut of Price
    5-Y Bids Rejected
    10-Y Bids Rejected
    (as on Nov 30, 2022)
    GIS (FRR)
    Tenor Cut-off Rental Rate
    5-Y Bids Rejected
    (as on 01-Dec-2022)
    GIS (VRR)
    Tenor Cut-off Price
    5-Y Bids Rejected
    (as on 01-Dec-2022)
  • PIB Auction
    (Fixed Rate)

    MTB Auction


    PIB Auction
    (Floating Rate)

    PIB Auction
    (Floating Rate)



    As on 25-Nov-22
    SBP’s Reserves
    Bank’s Reserves
    Total Reserves

    As on 05-Dec-22
    Revaluation Rate
    Average Rate
    Bid: 223.7161



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