Monetary policy: SBP maintains interest rate at 7pc

KARACHI: The State Bank of Pakistan (SBP) on Friday to keep the interest rate unchanged at 7 percent for the next two months, ARY News reported.

In a statement, SBP said that the Monetary Policy Committee (MPC), in its meeting today, decided to keep the policy rate unchanged at 7 percent.

The MPC noted that since the last meeting in March, the MPC was encouraged by the further upward revision in the FY21 growth forecast to 3.94 percent.

“This positive momentum is expected to persist, translating into higher growth next year,” it added.

1/3 MPC has decided to maintain policy rate at 7%. While inflation has risen since January, a small number of energy and food items account for about 3/4 of this rise. Demand-side pressures are contained, wage growth is subdued and inflation expectations are reasonably anchored.

— SBP (@StateBank_Pak) May 28, 2021

The MPC noted that supply-shocks to food and energy still dominate, with a small number of energy and food items in the CPI basket accounting for about three-fourths of the rise inflation since January. The monitoring policy committee also observed that although core inflation in urban areas has risen by around 1.5 percentage points during this period.

3/3 Looking ahead, in the absence of unforeseen circumstances, MPC expects monetary policy to remain accommodative in the near term & any adjustments in policy rate to be measured and gradual to achieve mildly positive real interest rates over time. See: https://t.co/L2PVKlBpNm

— SBP (@StateBank_Pak) May 28, 2021

The bank stated that unlike several previous growth upturns in Pakistan, the current economic recovery was achieved without compromising external stability.

“At $0.8 billion, the current account has remained in surplus through the first ten months of FY21 for the first time in 17 years. In recent months, imports have picked up with the economic recovery, rising international commodity prices, as well as one-off shipments of wheat and sugar to quell temporary domestic shortages,” the central bank said.

In light of the foregoing considerations, the MPC was of the view that the current significantly accommodative stance of monetary policy remains appropriate to ensure the recovery becomes firmly entrenched and self-sustaining. The SBP further observed that given the Covid-related uncertainties, the cost of withdrawing monetary stimulus too soon exceeded that of withdrawing too late.