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Business Recorder
8 hours ago
- Business
- Business Recorder
Discount rate remains unchanged
EDITORIAL: The Monetary Policy Committee (MPC) under the chairmanship of Governor State Bank of Pakistan Jameel Ahmed decided to keep the discount rate unchanged at 11 percent. This has surprised many, given the macroeconomic data routinely released by government entities in recent weeks and months. Consumer price index (CPI), or headline inflation, reported to be the prime determinant of the discount rate, has been declining since November 2024 — from 4.9 percent, to 4.1 percent in December, 2.4 percent in January, 1.5 percent in February, 0.7 percent in March and 0.3 percent in April. The MPC reduced the discount rate to 13 percent on 16 December, 12 percent on 12 January and 11 percent on 5 May even though the decline in CPI was much sharper during these months than previously. True that CPI rose to 3.5 percent in May and declined to 3.2 percent in June this year; however, the rate has been kept unchanged since May, indicating that the CPI may not be the primary determinant of the discount rate. Core inflation has also been steadily declining since March this year — from 8.2 percent to a low of 6.9 percent in June. The Monetary Policy Statement (MPS) noted that high frequency economic indicators were depicting a global economic recovery (and not just in Pakistan) — a stance that is clearly at odds with the International Monetary Fund (IMF). According to the IMF, 'forecasts for global growth have been revised markedly down compared with the January 2025 World Economic Outlook (WEO) Update, reflecting effective tariff rates at levels not seen in a century and a highly unpredictable environment.' The MPS further claimed notable year-on-year growth in automobile sales, fertilizer off-take, credit to private sector, imports of intermediate goods and machinery — sales and purchases that are not indicative of higher output, but a decline in inventories while post-Trump's inauguration the dollar lost value against all major currencies except the rupee, which accounts for lower import costs. The MPS makes reference to purchasing manager's index in recent months for the first time which begs the question as to how it is calculated. One may assume that it is part of the technical assistance (TA) extended by the IMF to Pakistan to deal with 'important shortcomings that remain in the source data available for sectors accounting for around a third of GDP while there are issues with the granularity and reliability of the Government Finance Statistics (GFS).' The September IMF documents note that the TA will support government efforts to improve GFS and formulate a new Producer Price Index. It is relevant to note that Business Recorder was informed by the Pakistan Bureau of Statistics that the TA began in July 2025 and will not be completed till end June 2026. The MPC appeared to be unaware of the fact that the large-scale manufacturing (LSM) growth was at negative 1.52 percent July-April 2025 (the most recent data released) against 0.26 percent in the comparable period of the year before; private sector credit rose from 323.5 billion rupees in 2023-24 to 676.6 billion rupees July-June 2024-25 with the rise associated with the stock market rather than the LSM. And maintained that barring flood-related risks agriculture sector is expected to recover in the current year — a risk that compromised the target last year and the recent ongoing floods may well belie this optimistic projection. In relation to the discount rate decisions taken by the MPC it is appropriate to cite the observation by the IMF in its May 2025 documents uploaded on its website titled the first review under the extended arrangement: 'while the reduction in headline inflation has been impressive, core inflation remains elevated, and the SBP should continue to calibrate monetary policy carefully, removing monetary constraint gradually and contingent on clear evidence that inflation is firmly anchored within SBP's target range'. In other words, the decision to remove monetary constraints on repatriation of profits under contractual obligations (in spite of reserves on 18 January cited at USD 14,456.6 million though the Governor SBP noted during his press conference that rollovers account for USD 16 billion) may be the primary reason for the Fund staff not to give the green light to the MPC to reduce the discount rate. The Governor SBP held a press conference after the MPC meeting, which must be appreciated as it is in line with the Fund recommendation to undertake effective communication 'as it will help the public better understand the MPC's reaction function and build support for policy decisions.' Sadly, it is fairly obvious that he failed to convince the naysayers in the industrial community that the decision to keep the rate unchanged was an appropriate one. The central bank seems to have taken a cautious approach with a view to ensuring price stability amid a surge in energy prices that has worsened the inflation outlook. Copyright Business Recorder, 2025
Mint
9 hours ago
- Business
- Mint
Trump's tactical rant: Don't let it work
The absurdity of Donald Trump referring to India's economy as 'dead" in a social media post, clubbing India with Russia for this diagnosis, seems to reveal some exasperation in the White House. The US president's apparent fury need not bother us. Also Read: Mint Quick Edit | Trump's tariff post: What should India do? If anything, we could take it as an endorsement of India's trade position, which has not yielded so far to unreasonable demands even as other US trade partners have settled for raw deals. As if to dismiss Trump's description of our economy, commerce minister Piyush Goyal pointed out in Parliament on Thursday that it was seen as a bright spot in the world by international agencies and would soon be the third largest by size. Also Read: The long arc of an India-US trade deal could end in a win-win Goyal also made it clear that India will do what it must to safeguard its national interest. By setting the record straight and displaying poise, India has shown maturity and signalled that it won't get rattled. Also Read: The IMF's 'World Economic Outlook' is too coy for a Trump-shaken world As trade talks with the US have not been suspended, Trump's language seems like a pressure tactic. But New Delhi must hold firm in its quest for a deal that's fair and well balanced. A near-term setback in US-bound exports may be better than inking a bad agreement that locks us in, even if it makes Trump rant.
Business Standard
21 hours ago
- Business
- Business Standard
Pound near two and half month low against US dollar, IMF expects further rate cuts in UK
The British Pound is witnessing tepid moves today, consolidating around two and half month lows against the US dollar. Dollar index has been soaring recently and there have been some worries around the near-term economic outlook for the UK. The International Monetary Fund (IMF) has noted this week that it expects UK interest rates to drop from the current 4.25% to 3.75% over next few months. In an update to its World Economic Outlook, the IMF said it expects the UK economy to grow by 1.2% this year and 1.4% in 2026. Meanwhile, the US Federal Reserve held interest rates steady between the range 4.25% to 4.5%. This pulled down the GBP/USD around 1% in last session and the pair currently quotes at 1.3239, almost unchanged on the day. On the NSE, GBP/INR futures are trading at 116.15, down 0.78% on the day, witnessing a sustained correction throughout the session.
Indian Express
a day ago
- Business
- Indian Express
ExplainSpeaking: Key takeaways from IMF's latest World Economic Outlook on India, the US, and the world
Dear Readers, On Tuesday (July 29), the International Monetary Fund (IMF) released the latest update of its World Economic Outlook (WEO). The IMF has 191 member countries, and its overall goal is to strive for their 'sustainable growth and prosperity'. It does so by fostering international trade, economic growth, and policies that encourage countries to cooperate, especially when it comes to monetary policy (that is, how each country manages its currency and finances). The WEO is the IMF's benchmark publication as it provides a comprehensive picture of the global economy as well as details of individual countries. The IMF releases the WEO twice every year, in April and October, apart from updating it twice — in January and July. The document released on Tuesday is the July update to the WEO released in April. The broader message is captured by the title of the update — 'Global Economy: Tenuous Resilience amid Persistent Uncertainty'. There are two main takeaways for the state of the global economy. First, the global economy has proven to be resilient, albeit tenuous, and second, the outlook is plagued by persistent uncertainty. Since the start of 2020, there has been no dearth of reasons to expect a global recession and a prolonged and broad-based slowdown in economic growth. First came the Covid-19 pandemic that created a once-in-a-lifetime economic and health disruption for all economies. It led to a spike in inflation thanks to the destruction of supply chains that had allowed goods to be traded seamlessly across the world. It also resulted in governments wildly exceeding their budget deficits — the difference between their expenditures and revenues — because while income from taxation fell because of lower economic activity, expenditures spiked with governments providing subsidies of all kinds to allay the economic ill-effects of the pandemic. By the time the world started coming out of its impact, February 2022 saw Russia invade Ukraine. That conflict, which is still ongoing, created an even bigger spike in inflation because supplies of several essential commodities, from foodgrains to fertilisers to crude oil plummeted suddenly even as consumers were flush with subsidy money. The net result was an inflation rate — the rate at which prices rise year on year — reaching historic levels. This, in turn, forced central banks across the world to raise interest rates sharply in a bid to contain inflation. Between a spike in inflation and the sudden reversal of monetary policy, every economic entity — be it governments, individual companies or even reputed banks and pension funds — faced an existential threat. Then, in January this year, when the world economy was starting to stabilise yet again, came the tariff onslaught unleashed by the second Trump Administration. The hike in tariffs — and counter tariffs — effectively works like an oil price shock; raising costs without raising production or productivity. And yet, despite all these upheavals, the global economy has managed to continue growing. That is the meaning of resilience. According to the latest update by the IMF: 'Global growth is projected at 3.0 percent for 2025 and 3.1 percent in 2026. The forecast for 2025 is 0.2 percentage point higher than that in the reference forecast of the April 2025 World Economic Outlook (WEO) and 0.1 percentage point higher for 2026.' However, this resilience is 'tenuous' (that is, unstable or with weak foundations). That's because, while the tariff situation isn't as bad as it appeared in April when US President Donald Trump first announced them on Liberation Day, it is not as if there is enough clarity about the eventual tariff rates. 'The new equilibrium could be one with tariff rates similar to those today, or it could be one in which rates are much higher, negotiations break down, and an escalation of protectionist measures restarts. Resetting tariff rates to the levels of April 2 or higher (as mentioned in the US administration's letters to trade partners) on August 1 and implementing tariffs as high as 50 percent on copper as currently pronounced would dampen global growth,' states the IMF. To be sure, a possible rebound in effective tariff rates is just one source of continued uncertainty. Another big downside risk comes from the geopolitical tensions (such as the ones in the Middle East and Ukraine), which could 'disrupt global supply chains and push commodity prices up'. Yet another worry is the growing build-up of debt, as governments continue to borrow far in excess of prudential norms. Higher government debt, especially in the so-called Advanced Economies, is pushing up interest rates. That's because it is now riskier to lend to governments because they are borrowing so much more. But the higher costs of borrowings will not be limited to developed economies; the worst affected by this push in interest rate might be the developing economies which need to borrow money for a longer period and where projects (read a massive infrastructure project) are considered to be much more risky than lending to the government of a first world country. What about the individual countries? The broad growth data hides considerable variation in the economic prospects of different countries. Source: IMF The US, from where most of the policy uncertainty is emanating at present, is expected to lose growth momentum in 2025, as against the past two years. By the end of 2025, US GDP would be close to $31 trillion. While the forecast in July is a marginal improvement (by 0.1 percentage point) over the April forecast, it is undeniable that the so-called 'Trump data' is worse than 'Biden data'. In 2026, the US growth is expected to slow down even further to just 1.2%. In sharp contrast, China, which is the main economic threat to the US, is expected to slow down only marginally and still manage to grow at a respectable rate of 4.8% for an economy with an annual GDP of over $19 trillion. In fact, China's GDP forecast for 2025 received the biggest upgrade — almost a full percentage point — against the April WEO (which pegged China's GDP growth at 4%). The Euro area, with a combined GDP of over $16 trillion, is also expected to grow at a rate faster than in the past two years. However, the biggest economy here — Germany — continues to witness economic stagnation. Immediately outside the Euro area, the UK is set to improve over the past two years, although the growth rate is expected to remain fairly weak at 1.2%. Japan's economy will improve its growth rate over 2024, but barely so, while the Russian economy will finally start to show the ill-effects of prolonged military conflict. India continues to be a bright spot in the global economy. It is expected to grow 6.4% in 2025. While this rate is substantially slower than 2023, the fact is that by growing at over 6% in a world where competing economies are struggling to grow even at one-third that rate, India is fast bridging the gap and ensuring that it overtakes one developed economy after another, at least in terms of total GDP. Lastly, Pakistan is expected to build on turning around its economic growth momentum, even though its growth rate is anaemic for an economy as small with a GDP of just around $380 billion. What can India do to further boost its economic growth rate? Share your views and queries at Take care, Udit Udit Misra is Deputy Associate Editor. Follow him on Twitter @ieuditmisra ... Read More
Mint
a day ago
- Business
- Mint
The IMF's ‘World Economic Outlook' is too coy for a Trump-shaken world
Mint Editorial Board The July update of this International Monetary Fund (IMF) report only has hints to offer on a global trade response to the US president's tariff turmoil. India stares at a 25%-plus US levy, but most countries are in the same boat—and could paddle in unison to save the WTO. By openly shunning rules, the US has signalled that might is right, with 'might' measured by what one can get away with. Gift this article At the best of times, the World Economic Outlook (WEO) published by the International Monetary Fund (IMF) does not pose any risk to human vision with blinding new insights. Ditto for its three quarterly updates. But these are not the best of times. On Wednesday, US President Donald Trump used his very own microblog platform Truth Social to declare that 'while India is our friend," imports from here would have to pay a tariff of 25%, plus a penalty for assorted US grievances, from 1 August. At the best of times, the World Economic Outlook (WEO) published by the International Monetary Fund (IMF) does not pose any risk to human vision with blinding new insights. Ditto for its three quarterly updates. But these are not the best of times. On Wednesday, US President Donald Trump used his very own microblog platform Truth Social to declare that 'while India is our friend," imports from here would have to pay a tariff of 25%, plus a penalty for assorted US grievances, from 1 August. Other countries have had to contend with such posts too. As the world's economies toss and turn amid choppy seas of trade uncertainty, policy watchers look to global bodies like the IMF for clues on how to reach calmer waters. Also Read: IMF outlook: The good, the bad and the unsaid The latest WEO update, issued on Tuesday, offers little navigational help. It makes some minor tweaks, generally upward, to its growth estimates released in April. Should we be happy that the world economy is expected to grow 3% in 2025, instead of the 2.8% estimated in April, and at 3.1% instead of 3% in 2026? Certainly, even if these are lower than the rates a post-pandemic world was hoping for and could have achieved had it not been for trade turmoil. The WEO puts the Indian economy's growth prospects at 6.4% for both 2025-26 and 2026-27, 0.2 and 0.1 percentage points higher than its April figures. While this is good news, it's only so in the prevailing context. Also Read: Dani Rodrik: How ideology sometimes trumps material interests As the WEO's April estimates were based on Trump acting out his 'Liberation Day' tariff threats, they assumed sharp hikes by the US and retaliatory barriers erected by its trade partners, with a harsh impact on inflation and growth both in America and elsewhere. Trump's actual import levies have shown some moderation since then. He has announced several trade deals, although the cumulative effect of his policy seems poised to raise tariffs from an average of 2.5% pre-Trump to nearly 18% once his deal-making is done and dusted. But these rates are not the only concern. Trumpian tariffs have turfed out the most-favoured-nation principle, the idea that a tariff levied on imports from one member of the World Trade Organization (WTO) must not be higher than the levy on shipments from another member, except as part of a free trade agreement. Also, the WTO's dispute settlement mechanism has no place in the new order dictated by the White House. By openly shunning rules, the US has signalled that might is right, with 'might' measured by what one can get away with. How should the rest of us adjust to the WTO's abandonment by the world's largest economy and issuer of the currency in which foreign trade is usually invoiced? The WEO update is largely silent. Also Read: India should use Trump's playbook on Trump for a fair trade deal Not that the report has nothing to say on what can be done. It advises structural reforms in areas like labour markets, education, regulation and competition, as well as steps to foster tech advances and the adoption of AI. It does not spell out motherhood and apple pie, but these are invisible appendages to the list. To be fair, the WEO does venture beyond the anodyne to suggest plurilateral or regional solutions, but without any elaboration. Perhaps the rest of the world could forge a pact to abide by WTO norms without the US. It won't please Trump. But we're at the raw end of his bargain anyway. For this, why blame a lack of lodestars in the IMF sky? The fault, as we know, is not in the stars, but in ourselves. Topics You May Be Interested In
