KARACHI – The State Bank of Pakistan (SBP) announced on Monday that the policy rate will remain unchanged at 22 percent for next two months
The announcement was made by SBP governor at a press conference. The Monetary Policy Committee (MPC) noted that the economic uncertainty has decreased since the last meeting, whereas near-term external sector challenges have been largely addressed and investor confidence has shown improvement.
While some upside risks to the inflation outlook have emerged, the committee also took note of the expected lagged impact of the accumulated monetary tightening so far, budgeted fiscal consolidation, and the tepid growth outlook for FY24.
The MPC particularly noted that year-on-year (y/y) inflation is likely to remain on downward path over the next 12 months, which implies a significant level of positive real interest rate.
Since the MPC meeting held on June 26, several important developments have influenced the shortterm macroeconomic outlook.
First, Pakistan has secured a nine-month Stand-By Arrangement (SBA) with the IMF that has helped address immediate external sector stability concerns by supporting the foreign exchange reserves. With disbursement of the first tranche under the SBA and $3 billion in bilateral support, the SBP’s FX reserves increased from $4.5 billion at end June 2023 to $8.2 billion as of July 21, 2023.
Second, on top of the additional tax measures introduced at the time of approval of the budget, the government has notified an increase in electricity tariffs which would contribute to inflation in coming months.
Third, the global commodity prices have somewhat increased but are still lower than their recent peak. Fourth, the IMF in its July 2023 World Economic Outlook has slightly raised its projection of global growth this year while leaving the 2024 growth projection unchanged.
In light of these developments, the MPC stressed on maintaining an appropriately tight monetary policy stance with positive real interest rates on forward looking basis to keep inflation and its expectation on downward path so as to achieve the medium-term inflation target of 5 – 7 percent by end-FY25.
