KARACHI - The State Bank of Pakistan is expected to maintain the status quo in the upcoming monetary policy for the second half of current financial year. Neither the central bank is expected to jack up further the discount rate nor reduce it in the upcoming policy, being announced on January 31, 2009, sources told The Nation on Monday. In November last year the SBP raised discount rate from 13 to 15 per cent, banking sources told The Nation on Monday. However, the SBP is seriously contemplating to reduce the cost of lending, KIBOR and deposit rates respectively through simple measures. In technical terms the measures which are expected to be taken by the SBP for the coming monetary policy will be more moderate and soft. The central bank is also eyeing to ease financial costs for the industrial and corporate sector borrowers through reducing high mark-up rates to an extent. It is worthwhile mentioning here that the monetary policy for H2-FY09 is scheduled to be announced on January 31, 2009 as it is going to complete by end-January this year. Banking sources said that instead of undertaking more aggressive monetary tightening stance during first half of on going fiscal, the central bank is no longer to consider monetary tightening as the approaching policy statement is seemed to be remained unchanged in the short-term, maintaining at 15 percent in the reaming months of FY09. It may be noted here that the State Bank of Pakistan had raised policy discount rate further by 200bps to 15 percent from 13 percent in November 2008 on interim basis ahead of loan approval of IMF-supported home grown comprehensive macroeconomic stabilization programme. Sources said that the monetary tightening during Nov-Jan FY09 became unavoidable given acceleration in government borrowings, persistent demand pressures, frequent hike in core inflation and widening current account deficit. Sources are of the opinion that though the two major components of monetary policy inflation price indices and the government borrowings from the central banks, recovered during December 2008, the auctioning of market treasury bills and other securities with commercial banks and non-banks are frequently taking place but the government is unlikely to bring any major shift in the exiting policy statement. As of January 15, 2009, foreign reserves exceeded 10 billion dollars, depicting improvement in gross reserve stocks. Hence, there will be no need to place floor on SBPs net foreign assets (NFA). According to FBS, the month-on-month based CPI inflation has been dropped by 0.50 percent, in December 2008, over the previous month of 2007 similarly The net government borrowings from SBP during FY09 until Jan 3, 2009 fell to Rs289bn from Rs309bn a week earlier. As a result, total stock of government borrowings from SBP, a key performance criteria under IMF, was recorded at Rs 1,323bn as against an IMF's Dec end 2008 ceiling of Rs 1,274bn. Finance advisor Shaukat Tarin had stated that the government had met the IMF targets including those related to SBP borrowing. Hence, it seems that govt had reduced its borrowing to Dec end 2008 target with fresh borrowing being made in the first 3 days of Jan 2009. Earlier, according to IMF stand by arrangement the government envisaged a significant tightening of monetary policy. To that end, the SBP recently increased its discount rate by 200 basis points, to 15 percent. Following this first step, interest rate policy will be sufficiently flexible to protect the reserves position, bring down inflation, and allow the government to place T-bills in order to avoid further central bank financing of the budget. A further increase in the discount rate will be considered at the time of the monetary policy statement scheduled for end-January 2009. However, the discount rate will be raised earlier if the actual reserves for end-November and end-December 2008 fall short of the program monthly floors on the SBP's net foreign assets. In addition, if the volume of T-bills placed in the auction scheduled for November 19 falls short of the announced target, understandings will be reached with Fund staff on corrective measures in order to meet the programme targets. In addition, the SBP would review the current procedures for liquidity management adopting and publicising a transparent liquidity management framework by end-July 2009 as part of its Monetary Policy Statement.