“With recent inflation developments in line with expectations, domestic demand beginning to moderate, and the external position showing some improvement, the MPC felt that it was prudent to take a pause at this stage.”
By Staff Reporter
KARACHI: State Bank of Pakistan kept its benchmark interest rate unchanged at 15 percent on Monday, and said it continued to have a cautious attitude toward policy stance considering runaway monthly inflation.
“Looking ahead, the MPC (monetary policy committee) intends to remain data-dependent, paying close attention to month-on-month inflation, inflation expectations, developments on the fiscal and external fronts, as well as global commodity prices and interest rate decisions by major central banks,” the central bank said in a policy statement.
“With recent inflation developments in line with expectations, domestic demand beginning to moderate, and the external position showing some improvement, the MPC felt that it was prudent to take a pause at this stage.”
Consumer price inflation reached 24.9 percent in July, the highest in 14 years.
The decision, which was largely in line with analysts’ expectations, came after the bank hiked rates by 125 basis points at its previous policy meeting in July as the country experienced surging inflation.
The decision comes ahead of a crucial meeting by the International Monetary Fund (IMF) in Washington next week, at which the bank said it was expected to approve a $1.2bn tranche of lending.
The central bank said the policy rate has been raised by a cumulative 800 basis points since last September, some temporary administrative steps have recently been taken to curtail imports, and strong fiscal consolidation is planned for FY23. “These actions are expected to work their way through the system over the coming months.”
SBP said headline inflation had risen further to 24.9 percent in July, with core inflation also ticking up. “This was expected given the necessary reversal of the energy subsidy package – effects of which will continue to manifest in inflation out-turns throughout the rest of the fiscal year – as well as momentum in the prices of essential food items and exchange rate weakness last month,” it added.
Meanwhile, the trade balance fell sharply in July and the rupee reversed course during August, appreciating by around 10 percent on improved fundamentals and sentiment.
“The Board meeting on the ongoing review under the IMF programme will take place on August 29th and is expected to release a further tranche of $1.2 billion, as well as catalysing financing from multilateral and bilateral lenders.
In addition, Pakistan has also successfully secured an additional $4 billion from friendly countries over and above its external financing needs in FY23. As a result, foreign exchange reserves will be further augmented through the course of the year, helping to reduce external vulnerability.
Copyright © 2021 Independent Pakistan | All rights reserved
