SBP to announce new monetary policy on 23rd

The State Bank of Pakistan (SBP) may slash its policy rates by 50 basis point to 7.5 per cent on Saturday which will help to divert Banks’ investment from government T-bills to ordinary farmers, loans and advances.

The central bank in a statement on Tuesday said: “It will announce its monetary policy decision for the next two months on Saturday.”

Few days back Prime Minister Nawaz Sharif highlighted the government manifesto to gives high priority to agriculture sector and small farmers. In this connection, the prime minister has given a clear direction to the banks to actively play their due role in extending loans to small farmers and marginalised segments of the society to enable them to contribute in socio-economic development of Pakistan.

The scheme is a testament of government’s commitment to support the small farmers in increasing their productivity and income levels, and spurring growth in overall agricultural sector.

The PM emphasized upon the need for banks to extend facilities to all deserving small scale borrowers to help them improve their living standards and get out of poverty trap.

He appreciated the role which the banks were playing in national economy but emphasized banks to cater the financial needs of all segments of the economy rather than focusing on a few large borrowers.

On the occasion, SBP Governor Ashraf Mahmood Wathra said agricultural credit market was evolving rapidly in recent years not only in terms of outreach but also in terms of depth and quality with diversified range of financing products, better portfolio quality, use of alternative and technology-driven delivery channels, and innovative credit methodologies.

In particular, there are significant advancements in areas like warehouse receipt financing, value chain financing, and market information infrastructure. He said credit disbursements to the agricultural sector was increasing and the sector was poised to achieve 53 per cent of the agriculture credit demand in 2014-15 compared to only 37 per cent in 2009-10.

The governor said the credit guarantee scheme for small farmers was a targeted and focused intervention for a well-defined segment that was currently being served by middlemen at high interest rates. A distinguishing feature of the scheme is that it establishes banks’ participation in the credit-risk, thus ensuring that banks’ due diligence standards are maintained while lending under this scheme.

The market expert forecasts that the central bank may further slash Reverse Repo Rate by 50 basis points to 7.50 percent. It may also bring down the Repo Rate to 5.0 percent, they further said.

The analysts foresee leveraged sectors especially cement, textiles, IPPs, fertilizers, telecoms benefiting from this proposed monetary policy decision of the Central Bank.

In the next PIB auction due today (Wednesday) to mop up Rs 50 billion, the central bank is likely to decline its weighted average yield. This should boast well for dividend yielding stocks particularly those in IPPs and fertilizer sectors.