Monetary policy: SBP keeps interest rate unchanged at 15pc

ISLAMABAD: The State Bank of Pakistan (SBP) decided to keep the benchmark policy rate unchanged at 15 per cent for the next six weeks.

The monetary policy committee (MPC) met under the chair of Deputy Governor Syed Murtaza and reviewed the economic indicators.

“With recent inflation developments in line with expectations, domestic demand beginning to moderate and the external position showing some improvement due to a lower trade deficit and resumption of the IMF (International Monetary Fund) programme, the MPC felt that it was prudent to take a pause at this stage,” the central bank said in a statement.

“This pause allows MPC to assess the impact of 800 bps tightening since September and fiscal consolidation planned for FY23,” the monetary policy statement mentioned, adding that it is also in line with recent actions by other emerging markets central banks, who have been holding rates in recent meetings as global growth and commodity prices have slowed.

2/5 With recent inflation developments in line with expectations, domestic demand beginning to moderate & the external position showing some improvement due to a lower trade deficit and resumption of the IMF program, the MPC felt that it was prudent to take a pause at this stage.

— SBP (@StateBank_Pak) August 22, 2022

The SBP further said: “To contain external pressures and support the Rupee going forward, it is important to contain the current account deficit by delivering the budgeted fiscal consolidation, lowering energy imports through energy conservation measures, and keeping the IMF program on-track.”

Looking ahead, it said the MPC intends to remain data-dependent, pay close attention to issues such as month-on-month inflation, inflation expectations, developments on the fiscal and external fronts, as well as global commodity prices & interest rate decisions by major central banks.

4/5 To contain external pressures and support the Rupee going forward, it is important to contain the current account deficit by delivering the budgeted fiscal consolidation, lowering energy imports through energy conservation measures, and keeping the IMF program on-track.

— SBP (@StateBank_Pak) August 22, 2022

According to the SBP press release, the MPC noted three key domestic developments since its last meeting.

First, it said the headline inflation rose further to 24.9% in July, with core inflation also ticking up.

Secondly, trade balance fell sharply in July and the rupee reversed course during August, appreciating by around 10% on improved fundamentals and sentiment.

Thirdly, it said the IMF’s board meeting would take place on August 29 and is expected to release a further tranche of $1.2 billion, as well as catalysing financing from multilateral and bilateral lenders.