State Bank maintains interest rate at 5.75 pct in new Monetary Policy

KARACHI: State Bank of Pakistan (SBP) has decided to maintain the interest rate at 5.75 percent, ARY News  reported.

SBP announced the new monetary policy for the next two months on Saturday.

According to the policy, the year-on-year CPI inflation has increased from 1.6 percent in October 2015 to 4.2 percent in October 2016 and core inflation is inching upwards as well.

It was also stated that a healthy uptick in private sector credit for fixed investment will further support future growth.

The policy also stated, “Improving aggregate supply is expected to better cater to rising domestic demand in FY17. However, international oil price movements may impact inflation.”

The central bank stated that the current macroeconomic stability and net retirement of government  borrowings from scheduled banks resulted in relatively easy liquidity conditions in the money market. Some support also came from increase in bank deposits as the growth in currency in circulation receded back to its past levels after rising exceptionally high in FY16.

It was also mentioned that volatility in the inter-bank market continued to remain low and the overnight money
market repo rate stayed close to the policy rate in the post September 2016 monetary policy period.

“The global growth outlook for 2016 is mixed. While growth prospects for the US economy remain positive, uncertainties exist for international financial markets and global trade amid anticipated interest rate hike by the US-Fed,” SBP stated.

State Bank stated, “Pakistan’s continuous buildup of external buffers over the last three years has improved its resilience against external uncertainties. This is reflected in the current level of foreign exchange reserves which cover more than four months of projected import payments. In addition, the recent improvement in Pakistan’s sovereign rating along with official financial inflows is projected to sustain its foreign exchange reserves.”

“However, unpredictability of non-trade flows will influence the current account in particular and the external sector in general during the rest of FY17,” the statement read.