The State Bank of Pakistan (SBP) is poised to unveil its upcoming Monetary Policy Statement (MPS), which is expected to emphasize economic growth and potential rate cuts. This eagerly awaited policy update will reflect the central bank’s efforts to sustain economic momentum while addressing critical concerns like the Advance to Deposit Ratio (ADR).
The banking industry has witnessed significant progress, with the ADR showing a sharp recovery. The SBP’s upcoming press release and monetary policy decision are likely to highlight these advancements. Governor SBP is anticipated to outline the economic benefits of recent policy measures, with detailed explanations from the SBP’s presentation team during the MPS Analysts Briefing.
A notable aspect of the current monetary policy environment is the substantial reduction in the policy rate—700 basis points so far. This has been accompanied by a steep decline in KIBOR, t-bills, bonds, and Sukuk rates, creating an optimistic outlook for further reductions. Market predictions suggest an additional rate cut of 100–300 basis points in the upcoming announcement.
The ADR remains a focal point of monetary policy discussions. The government has formed a high-level committee to address the challenges surrounding ADR compliance, which arose when banks failed to allocate 50% of their deposits as credit to the private sector. Experts suggest that basing ADR calculations on an annual average rather than year-end figures could lead to more consistent and meaningful private sector lending.
Recent SBP data reveals record-breaking financial activity. Bank advances have surged to an all-time high of Rs. 14.9 trillion, while deposits have reached an unprecedented Rs. 31.1 trillion. This growth reflects a significant infusion of liquidity into the private sector, which has bolstered credit lines for corporations and boosted economic activity. However, questions remain about the impact on job creation and the specific industries benefiting from this credit expansion.
The SBP’s role in fostering private sector growth is further evidenced by its efforts to manage liquidity through open market operations (OMO). As of December 6, the SBP injection stands at Rs. 10,632 billion, with Rs. 554 billion contributed by Islamic banks and the remainder by conventional banks. These measures have helped stabilize the financial sector and improve the government’s debt profile by reducing refinancing costs through lower yields on government papers.
Inflation has also shown a rapid decline, thanks to coordinated efforts between fiscal authorities and monetary policymakers. The reduction in inflation has eased financial pressure and improved the balance of payments and fiscal deficit figures.
Looking ahead, the market is keen to see how the SBP addresses ADR management and guides the banking sector in the last two quarters of the fiscal year. The recently released BPRD Circular on Minimum Rate of Return on Saving Deposits (MDR) aims to protect depositors, especially small ones, while compensating banks for aggressive deposit collection measures.
As the SBP prepares to announce its policy rate adjustments, its focus on ADR compliance, private sector credit expansion, and economic growth will be closely scrutinized. With advancements in lending and record-high funding levels, the financial sector is positioned to play a pivotal role in sustaining Pakistan’s economic recovery.