The International Monetary Fund (IMF) has welcomed the State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) decision to keep policy rates on hold.
The IMF in its second and final review under the Stand-By Arrangement report released on Friday said continuing a tight monetary stance is critical to durably entrench disinflation and demonstrate that the monetary policy framework is fit for purpose.
“Considering the risks to inflation and the criticality of re-anchoring expectations to the SBP’s medium-term inflation objective, staff welcomed the MPC’s decision to keep policy rates on hold,” said the IMF.
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The remarks from the Washington-based lender come amid mounting pressure on SBP to call an emergency meeting and review the current interest rate amid a drop in inflation.
Last month, the central bank’s MPC kept the key interest rate steady at 22% for the seventh straight meeting.
In its statement, the Committee noted that macroeconomic stabilization measures are contributing to considerable improvement in both inflation and external position, amidst moderate economic recovery.
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“However, the MPC viewed that the level of inflation is still high. At the same time, global commodity prices appear to have bottomed out with resilient global growth.
“The recent geopolitical events have also added uncertainty about their outlook. Moreover, the upcoming budgetary measures may have implications for the near-term inflation outlook,” it said.
Meanwhile, the IMF in its report on Friday maintained that the authorities agreed that any loosening of the policy stance should be supported by further evidence that “inflation remains on a declining trend, pass-through remains contained, and possible exchange rate pressures from FX market normalization are limited.”
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The IMF noted that guiding inflation down successfully is critical to reinvigorating public confidence in a consistent and effective monetary policy framework, with “(i) the primacy of the medium-term inflation objective; (ii) the interest rate as the main policy tool (rather than the exchange rate as an intermediate tool); and (iii) monetary transmission operating, albeit slowly, through the standard channels.”
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