Monetary Tightening

Monetary Tightening

The policy in which a central bank raises interest rates and deposit ratios to make credit less easily available. This usually happens when the central bank is seeking to control or is concerned about inflation. Monetary tightening can negatively impact security prices and make it hard to receive a loan for a house or business.
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The central bank adopted monetary tightening stance in May 25, 2018 and since then pushed up interest rates to 13.25 percent from 6 percent during the past eight consecutive policy announcements.
We re-affirm out view of period gains remaining highly likely, while a wholesale rally would hinge on a slew of catalysts likely to emerge from: 1) conclusion of the current cycle of monetary tightening seen in early 4QCY20 (Sept'19 MPC expectations can be seen crystalized in 21st Aug'19 PIB auction participation), 2) successful completion of IMF's second quarterly review (expected during Nov'19) and FATF consultations (expected on Oct'19), and 3) external space emerging from global monetary tightening (softening US$) and weak energy commodity prices.
The continuing slide of the rupee against the dollar has also been a factor, for which monetary tightening has been suggested as a solution.
The State Bank of Pakistan (SBP) had adopted monetary tightening stance back in May 25, 2018 and since then pushed up interest rates to 13.25 percent from 6 percent during the past eight consecutive policy announcements.
Monetary tightening, along with a slowing global economy, will result in a significant slowdown in economic growth.
In this backdrop, the continuation of monetary tightening makes sense.
Ramsden, who has a slim chance of replacing Carney when he steps down in January 2020, said yesterday: "If we get a smooth Brexit with a transition deal I expect growth to pick up, leading to excess demand and building domestic inflationary pressure, so that further monetary tightening is appropriate to maintain monetary stability."
Governor Murat Cetinkaya said another round of monetary tightening might be expected.
World Bank senior economist Rong Qian said the BSP now has less considerations for monetary tightening as far as inflation is concerned as most of the aggravating factors are diminished.
Emefiele said the decision to reduce the rate was taken in the overall interest of the economy, as there was a need to have a refocus on monetary tightening.
Moreover, the last quarter of 2018 was particularly interesting as it witnessed more bearish sentiments due to growth uncertainties in China, an ongoing trade war and aggressive pace of monetary tightening by the Fed.
Inflation expectations, pricing behaviors, lagged effects of monetary policy decisions, contribution of fiscal policy to the balancing process and developments in other factors affecting inflation will be monitored closely and additional monetary tightening can be made if needed.