Monetary policy: SBP keeps interest rate unchanged

KARACHI: The State Bank of Pakistan (SBP) on Monday decided to keep the policy rate unchanged at 22 per cent for the seventh consecutive session, ARY News reported.

The announcement came after a meeting of the bank’s Monetary Policy Committee (MPC).

In a statement, the MPC said stressed on continuation of the current monetary policy stance to bring inflation down to the target range of 5 – 7 per cent by September 2025.

“The macroeconomic stabilisation measures are contributing to considerable improvement in both inflation and external position, amidst moderate economic recovery,” it stated. However, the committee 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,” the statement noted.

Last month, the committee had maintained the status quo by upholding the key policy rate at 22 per cent.

‘Current account recorded surplus’

The monetary policy committee, in its statement today, noted that data for the first half of fiscal year 2024 suggested that economic activity is recovering at a moderate pace, led by strong rebound in agriculture sector.

Moreover, the current account recorded a sizable surplus in March 2024, which helped to stabilise the SBP’s foreign exchange reserves despite substantial debt repayments and weak financial inflows, as per the communique.

“Third, inflation expectations of consumers inched up in April 2024, whereas those for businesses declined. And lastly, leading central banks particularly in advanced economies have adopted cautious policy stance after noticing some slowdown in the pace of disinflation in recent months.”

Real Sector

The MPC, citing data, noted that it support the committee’s earlier expectation of a moderate recovery in this fiscal year with real GDP growth projected to remain in the range of 2 to 3pc.

“Agriculture sector remains the key driver with robust 6.8pc growth in H1-FY24. This outcome was supported by significant increase in rice, cotton, maize and wheat harvests”, the committee said quoting latest official estimates.

In the industrial sector, the MPC said largescale manufacturing reported a 0.5pc decline in July-February FY24 compared to 4.0pc contraction recorded in the same period last year.

In the services sector, the Committee noted that the growth in H1 was slightly lower than expected, reflecting the impact of subdued demand.

“Based on relatively improved capacity utilization and business sentiments, as well as low base-effect from last year, the MPC expects value-addition from manufacturing and services sectors to recover in the coming months,” the statement added.