The State Bank of Pakistan (SBP) has announced that it will not change the key policy rate, keeping it steady at 22%. This decision was made by the Monetary Policy Committee (MPC) in response to September’s consumer inflation rate of 31.4%, which was higher than expected. The decision comes just before a visit from the International Monetary Fund (IMF) delegation to review the progress of a $3 billion bailout programme for the country’s struggling economy.
The MPC stated that while inflation is projected to decrease in October and throughout the second half of the fiscal year, there are still risks posed by the recent volatility in global oil prices and the upcoming increase in gas tariffs. However, the committee also noted some positive factors, such as targeted fiscal consolidation, improved availability of key commodities in the market, and the alignment of interbank and open market exchange rates.
The committee also highlighted some key developments since its previous meeting, including encouraging estimates for the Kharif crops’ performance and a narrowing current account deficit in August and September. Fiscal consolidation remains on track, with improvements in both fiscal and primary balances during the first quarter of the fiscal year. Additionally, while core inflation remains stable, inflation expectations for both consumers and businesses have improved from the latest pulse surveys.
Considering these developments, the MPC reaffirmed the need to continue with a tight monetary policy stance. The committee emphasized the importance of a significantly positive real policy rate to reduce inflation to the medium-term target of 5-7% by the end of FY25. However, the outlook depends on continued fiscal consolidation and timely realization of planned external inflows.
The handout also mentioned that recent data on economic activity support the MPC’s earlier expectation of moderate growth this year. Major Kharif crops have shown a considerable increase compared to last year, and there has been a moderate recovery in other key indicators such as cement, petroleum product prices, and auto sales. The large-scale manufacturing sector has also shown gradual improvement, primarily driven by domestic-oriented sectors.
The MPC expressed optimism that inflation will decrease in the coming months, despite the current volatility in global oil prices and the impact of the increased gas tariffs, both of which continue to exert inflationary pressure.
Additional information from Reuters was also included.