KARACHI – In line with market expectations, the State Bank of Pakistan (SBP) left the key interest rate unchanged at 5.75% for the next two months.
“The Monetary Policy Committee has decided to keep the policy rate at 5.75%,” a SBP press statement said on Friday.
The central bank has kept the discount rate unchanged at 5.75% since May 2016. This is the lowest level in four decades. It was in double digits at 10% in the first half of fiscal year 2012-13 before easing inflationary pressure led to a decline in the key interest rate.
Overall inflation in FY18 is expected to remain well below the target of 6%, the monetary policy statement said. Consumer price index (CPI) inflation averaged 3.5% during Jul-Oct FY18 – well below the annual inflation target.
Caution on depleting foreign reserves:
Despite all the positive development, SBP’s foreign exchange reserves stand at $13.5 billion as on November 17, 2017 down from $16.1 billion at end June 2017. However, progress on the China-Pakistan Economic Corridor (CPEC) related projects and other official proceeds will be instrumental in managing the overall balance-of-payments deficit.
Regulatory duties may curb imports:
The introduction of regulatory duties is expected to help curb some growth in imports during the coming months.
Moreover, the financial account perspective shows that FDI inflows have risen, reaching $940 million by the end of October FY18 compared with $539 million during the same period last year, indicating improving sentiments regarding the economy.
