KARACHI: The State Bank of Pakistan (SBP) on Monday decided to maintain its benchmark interest rate – the cost of bank lending – at 22 percent, ARY News reported, citing a statement by central bank.
The announcement came after a meeting of the bank’s Monetary Policy Committee (MPC), which decided to maintain the policy rate at 22%.
According to a statement, the MPC emphasised on continuing with the tight monetary policy stance and reiterated that the “real policy rate is significantly positive on forward-looking basis to bring inflation down to 5 – 7 percent by end-FY25”.
1/3 Monetary Policy Committee (MPC) of #SBP has decided to maintain policy rate at 22% in its meeting held today. See https://t.co/P8SJRWWQhc#SBPMonetaryPolicy pic.twitter.com/t1ixjs3W5Z
— SBP (@StateBank_Pak) October 30, 2023
“MPC emphasised that achieving medium-term inflation target is based on continued fiscal consolidation and timely realization of planned external inflows,” the statement added.
In the statement, the MPC said that the committee noted that headline inflation rose in September 2023 as expected.
“However, it is projected to decline in October and then maintain a downward trajectory, especially in the second half of the fiscal year,” it said.
“While the recent volatility in global oil prices as well as the increase in gas tariffs from November 2023 pose some risks to the FY24 outlook for inflation and the current account, the committee also noted some offsetting factors. These include the targeted fiscal consolidation in Q1; improvement in market availability of key commodities; and the alignment of interbank and open market exchange rates,” it said.
The committee also noted some “key developments” since its September meeting, which included initial estimates for Kharif crops being encouraging, adding that it would have “positive effects” on other key sectors.
It further said that the current account deficit narrowed considerably in August and September, which helped to “stabilise the SBP’s foreign exchange reserves position amidst tepid external financing in these two months”
At the same time, fiscal consolidation also remained on track, with both fiscal and primary balances improving during the first quarter of FY24. In addition, the committee said that while “core inflation remains sticky, inflation expectations of both consumers and businesses improved in the latest pulse surveys”.
“However, global oil prices remain quite volatile and the conflict in the Middle East makes its outlook even more uncertain,” the committee said.
“In the light of these developments, the MPC emphasised on continuing with the tight monetary policy stance. The MPC reiterated its earlier view that the real policy rate is significantly positive on 12 month forward-looking basis and is appropriate to bring inflation down to the medium-term target of five to seven per cent by end-FY25.
“However, the MPC noted that this outlook is based on continued fiscal consolidation and timely realisation of planned external inflows,” it said.
The statement further stated that recent data on economic activity strengthened the MPC’s earlier expectation of moderate economic outlook growth for this year.
It said that large-scale manufacturing (LSM) output had indicated a “gradual improvement” in the first two months of this year, with major contributions coming from domestic-oriented sectors.
It added that it was optimistic that inflation would decrease in the coming months, “which will absorb major negative developments”. The recent volatility in global oil prices, as well as the impact of a substantial increase in gas tariffs, maintains inflationary pressure, it concluded.
The development comes ahead of the International Monetary Fund’s (IMF) review for the release of the second tranche of $710 million .
The central bank has raised its policy rate by a cumulative 1,500 basis points since October 2021 to curb soaring inflation and support the external balance. The rate has been on hold since July 2023.
In the last meeting in July, State Bank of Pakistan (SBP) also decided to keep the interest rate unchanged at 22 percent.
 on Monday decided to maintain its benchmark interest rate – the cost of bank lending – at 22 percent.){kind=link}