Project Appraisal and Credit Management Assignment No 3 Section: A Presented To: Sir Mohammad Azfar

Project appraisal and credit management
Assignment no 3
Section: A
Presented to: Sir Mohammad azfar
Presented by: ABEERA SAEED L1F18MCOM7024

MONETORY POLICY OF PAKISTAN
 At its meeting on 15th May 2020, the Monetary Policy Committee (MPC) decided to
reduce the policy rate by 100 basis points to 8 percent. Inflation could fall closer to the
lower end of the previously announced ranges of 11-12 percent this fiscal year and 7-9
percent next fiscal year.
 The MPC highlighted that the corona virus pandemic has created unique challenges for
monetary policy due to its non-economic origin and the temporary disruption of
economic activity required to combat it. This has contained the tightening of financial
conditions that would otherwise have amplified the initial necessary contraction in
activity.
 The MPC noted the swift and forceful monetary easing of 525 basis point in the two
months since the beginning of the crisis and SBP’s measures to extend principal
repayments provide payroll financing, and other measures to support liquidity. Together
with the government’s proactive fiscal stimulus―including targeted support packages for
low-income households, SMEs, and construction
 This coordinated and broad-based policy response has provided relief and stability and
should provide support for recovery as the pandemic subsides.
 In reaching its decision, the MPC considered key trends and prospects in the real,
external and fiscal sectors, and the resulting outlook for monetary conditions and
inflation
Key developments since the last MPC meeting
The MPC noted three key developments since the last MPC meeting on 16th April, 2020. First,
the government has significantly reduced petrol and diesel prices by 30-40 percent in response to
the continued fall in global oil prices, which has improved the outlook for inflation. Second,
most countries, including Pakistan, have begun easing lockdowns, which should help provide
support to economic activity. Nevertheless, as elsewhere, the situation remains highly uncertain
Third, due to timely policy actions and international assistance, the initial volatility observed in
domestic financial and foreign exchange markets has somewhat subsided in recent weeks,
although global financial conditions remain considerably tighter than before the corona virus
outbreak.
Real sector
Economic data has been consistent with the expected sudden and sharp drop in activity. LSM
witnessed a steep decline of 23 percent (y/y) in March, due to the withdrawal from economic and
social activity aimed at slowing the spread of the virus. High-frequency indicators of demand
such as credit card spending cement dispatches, credit off-take and POL sales also suggest a
marked contraction in domestic economic activity in both March and April.
The government has initiated a phased lifting of restrictions for different economic sectors
conditional on the future course of the pandemic. If this easing proceeds smoothly, activity
should pick up in coming months.
External sector
The current account deficit has continued to narrow, even though both exports and imports have
fallen sharply since the corona virus outbreak. Exports declined by 10.8 percent (y/y) in March.
Imports, after indicating some recovery on in recent months, contracted by 19.3 percent (y/y).
The April figures from the Pakistan Bureau of Statistics reveal an even steeper decline in both
exports (54 percent) and imports (32 percent).
Pakistan’s external position remains fully funded. Together, these developments, buttressed by
the flexible exchange rate regime, should continue to support a steady build up in the SBP’s
foreign exchange reserve buffers.
Fiscal sector
Like the external sector, the fiscal sector was also on track of much-needed consolidation before
the corona virus outbreak. The primary balance recorded a surplus of 0.4 percent of GDP in Jul-
Mar FY20 against a deficit of 1.2 percent in the same period of FY19, the first 9-month surplus
since FY16.
After rising by 17.5 percent (y/y) during Jul-Feb FY20, tax revenues declined sharply by 15
percent (y/y) in both March and April
Monetary and inflation outlook

The MPC noted the significant reduction in headline inflation since January on the back of
sharply decelerating food and energy prices, as well as easing core inflation. Looking ahead, this
waning price momentum is expected to be complemented by the recent 30-40 percent cut in
domestic petrol and diesel prices, creating room for today’s additional rate cut Today’s decision
has brought the cumulative reduction in the policy rate to 525 basis points, which was enabled by
the fact that both the fall in inflation in Pakistan since January and the expected further decline
next year.
The inflation outlook is subject to two-sided risks. Inflation could fall further than expected if
economic activity fails to pick up as expected next fiscal year. On the other hand, there are some
upside risks from potential food-price shocks associated with adverse agricultural
Conditions
IMPACT OF MONETORY POLICY OF ECONOMIC AND INDUSTRY CONDITION

OF OUR BREAD COMPANY
Monetary policy can offset a downturn because lower interest rates reduce consumers' cost of
borrowing to buy big-ticket items such as cars or houses. For firms, monetary policy can also
reduce the cost of investment.
 Monetary policy caused low inflation which is favorable for our business it is
easier to predict future costs, prices and wages. The stability of low
inflation encourages us to take on riskier investment; this can lead to higher
growth in the long-term. Countries with low long-term rates of inflation tend to
have improved economic performance
 Due to corona virus pandemic economic activity is low it can also cause financial
threat to our business but the recent monetary policy allows us enhanced
refinancing facilities that have helped maintain credit flows, bolster the cash flow
of our company, and support asset prices.
 Due to the withdrawal from economic and social activity aimed at slowing the
spread of the virus production of our product has decline.
 according to monetary policy due to decrease in imports sale of our product has
increase
 because of low inflation the prices of raw material have been reduced which is
helpful for us

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Project Appraisal and Credit Management Assignment No 3 Section: A Presented To: Sir Mohammad Azfar

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Project appraisal and credit management

Presented by: ABEERA SAEED L1F18MCOM7024

Key developments since the last MPC meeting

Monetary and inflation outlook

IMPACT OF MONETORY POLICY OF ECONOMIC AND INDUSTRY CONDITION

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