SBP keeps policy rate unchanged at 22 percent citing elevated
inflation
The State Bank of Pakistan (SBP) has chosen to maintain its
key rate at 22 percent during its fifth consecutive policy meeting,
simultaneously revising its full-year inflation forecast upwards. The governor
of the SBP justified this decision citing "elevated" inflation, which
stood at 29.7 percent in December. The bank's average inflation projection for
the fiscal year ending in June has been adjusted to 23-25 percent, up from the
previous estimate of 20-22 percent, primarily due to escalating gas and
electricity prices.
This decision, occurring under a caretaker government before
upcoming general elections, aligns with Pakistan's ongoing reforms linked to a
$3 billion standby arrangement with the International Monetary Fund (IMF). The
central bank's cautious approach is seen as a "wait-and-see"
strategy, with expectations that a monetary easing cycle may commence as
economic indicators gradually improve and inflation is anticipated to decrease
significantly from March 2024 onwards.
State
Bank of Pakistan keeps policy interest rate steady at 22%
Jameel Ahmad, the SBP governor, highlighted positive
developments in the country's external accounts, foreign exchange reserves, and
a expected reduction in the current account deficit. Despite facing challenges
tied to IMF conditions, including raising the benchmark interest rate,
enhancing government revenue, and adjusting electricity and natural gas prices,
Ahmad asserted that Pakistan is now in a "better position" since
signing the IMF standby agreement.
The key interest rate in Pakistan was elevated to an
unprecedented 22 percent in June to combat persistent inflationary pressures
and fulfill IMF conditions for the bailout. While the rescue program has
averted sovereign debt default, associated conditions have complicated efforts
to curb inflation and dampened business sentiment. Despite negative real rates,
the business community has been advocating for a rate cut to alleviate some
economic challenges.
Source: Profit Pakistan