The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) has kept the key policy rate unchanged at 21%, it was announced through a statement on Monday.
“At its meeting today, the MPC decided to keep the policy rate unchanged at 21%. The MPC noted that higher inflation outturns for April and May were broadly as anticipated. The Committee also noted a sequential ease in inflation expectations of both consumers and businesses from their recent peaks,” it said in a statement.
“Further, the committee expects domestic demand to remain subdued amid tight monetary stance, domestic uncertainty and continuing stress on external account. In this backdrop, and given the declining m/m trend, the MPC views inflation to have peaked at 38 percent in May 2023, and barring any unforeseen developments, expects it to start falling from June onwards.”
The MPC said the committee noted multiple important developments since the last meeting.
“First, the provisional National Accounts estimates show real GDP growth to have decelerated considerably during FY23.
“Second, the current account balance recorded back-to-back surpluses in March and April 2023, which reduced some pressures on foreign exchange reserves.
“Third, the government unveiled the budget for FY24 on June 9, which envisages a slightly contractionary fiscal stance against the revised estimates for FY23.
“Fourth, the global commodity prices and financial conditions have eased recently and are expected to persist in near term.”
The committee took stock of the cumulative impact of the substantial monetary tightening undertaken so far, which is still unfolding.
“On balance, the MPC views the current monetary policy stance, with positive real interest rates on forward looking basis, as appropriate to anchor inflation expectations and to bring down inflation towards the medium term target – barring any unexpected domestic and external shocks.”
However, the MPC emphasised that this outlook is also contingent on effectively addressing the prevailing domestic uncertainty and external vulnerabilities.
Background
A majority of analysts had anticipated the central bank to keep the key interest rate unchanged in today’s announcement.
Esther Perez Ruiz, the IMF’s resident representative for Pakistan, that there was only time for one last board review before the scheduled end of the $6.5-billion Extended Fund Facility (EFF).
“To pave the way for a final review under the current EFF, it is essential to restore the proper functioning of the foreign exchange market, pass a FY24 budget consistent with programme objectives, and secure firm and credible financing commitments to close the $6 billion gap ahead of the board,” said the IMF official.
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