State Bank of Pakistan reveals current account surplus rose to $508 million

The State Bank of Pakistan has revealed on Wednesday that the Current Account Balance (CAB) of Pakistan posted a cumulative surplus of $805 million during the first two months of the ongoing fiscal year.

According to the details, the State Bank of Pakistan revealed on its twitter handle, that the current account remained in a surplus in August for the second consecutive month, due to “impressive growth in workers’ remittances and lower import payment.”

The current account surplus rose to $508 million and $296 million in July and August 2020, respectively.

Cumulatively, the CAB reached a surplus of $805 million during July-August FY2020-21 as against a deficit of $1.2 billion in the same period last year. “Efforts to attract workers’ remittances, flexible exchange rate and relatively benign import prices explain the improving current account balance,” the tweeted SBP.

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1/2 Current Account Balance (CAB) turned into a surplus for the second consecutive month in August 2020 led by an impressive growth in workers’ remittances and lower import payment. CAB surplus amounted to $508 mn and $297 mn during July and August 2020: https://t.co/Od8ikVvpBF

— SBP (@StateBank_Pak) September 23, 2020

2/2 Cumulatively CAB reached a surplus of $805 mn during Jul-Aug FY21 compared to a deficit of $1.2 bn in the same period last year. Efforts to attract workers’ remittances, flexible exchange rate and relatively benign import prices explain the improving current account balance.

— SBP (@StateBank_Pak) September 23, 2020

New Monetary Policy

On Monday, the State Bank of Pakistan (SBP) left the benchmark interest rate unchanged at 7% for the next two months.

The decision taken by the SBP Monetary Policy Committee (MPC) was largely in line with market expectations, as the policy remains an effective tool available with the central bank to control inflation. “The interest rate is left unchanged…on the threat of uptick in inflation in short term,” said SBP Governor Reza Baqir.

SBP kept its projection for average inflation for full-year FY21. Economic activities are gradually improving. SBP anticipates economic growth at 2% in FY21.

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The central bank adjusts its policy rate according to the inflationary trend. A high inflation reading demands an increase in the policy rate to make borrowing expensive and low inflation leads to a reduction in the policy rate to stimulate business expansion.

Interest Rate Time Line

In January 2020, the interest rate was 13.2%. The Monetary Policy Committee, in its March 17 meeting, had decided to reduce the policy rate by 75 basis points, after which the interest rate was reduced from 13.25% to 12.50%.

One week later, on March 24, 2020, an emergency meeting of the MPC was convened to review the economic impact of the coronavirus epidemic.

The meeting decided to further reduce the interest rate by 1.50% after which the interest rate was reduced to 11%.

Later, on April 16, 2020, at the MPC meeting, the basis points were further reduced by 200, which reduced the interest rate to 9%.

Announcing its monetary policy on May 15, the SBP cut interest rates by another 100 basis points to 8%.

The SBP announced a new monetary policy on June 25, reducing interest rates by another 100 basis points to 7%.