Monetary policy: SBP leaves interest rate unchanged at 7%

KARACHI: The State Bank of Pakistan in its Monetary Policy for the next two months has decided to maintain interest rate at seven percent, ARY News reported on Monday.

At its meeting today, the Monetary Policy Committee (MPC) of the central bank decided against any change in the discount rate and maintained the rate at existing seven percent.

The MPC noted that since the last meeting in September, the domestic recovery has gradually gained traction, in line with expectations for growth of slightly above 2 percent in FY21, and
business sentiment has improved.

According to the central bank statement, the recent spike in Covid cases in Pakistan and many other countries presents considerable downside risks. While there has been encouraging news on vaccine development, which could take some time to fully implement worldwide.

The bank stated that the inflation has been on the higher side, primarily due to increases in food prices. However, these supply-side pressures are likely to be temporary and average inflation is expected to fall within the previously announced range of 7-9 percent for FY21.

According to the central bank, recent data suggest a further strengthening and broadening of the recovery, led by construction and manufacturing sectors.

The bank stated that the sales of Fast Moving Consumer Goods (FMCGs) rebounded in FY21 Q1 and average sales volumes of POL and automobiles have surpassed their pre-Covid levels of FY20, and cement sales are at an all-time high.

“Large scale manufacturing (LSM) continues to rebound, expanding by 4.8 percent (y/y) in FY21 Q1, against a contraction of 5.5 percent in the same quarter last year.

Nine out of fifteen major manufacturing sectors have shown gains, including textiles, food and beverages, petroleum products, paper
and board, pharmaceuticals, chemicals, cement, fertilizer, and rubber products.

In agriculture, the impact of the expected decline in cotton production is likely to be offset by growth in other major crops and higher wheat production due to the rise in support prices and recently announced subsidies on fertilizers and pesticides.

While social distancing continues to weigh more heavily on certain parts of the services sector, wholesale and retail trade and transportation are expected to benefit from the impacts of the ongoing pick-up in construction, manufacturing and agriculture.