The State Bank of Pakistan (SBP) has opted to maintain the status quo by keeping the key policy rate unchanged at 22 per cent for the seventh consecutive policy meeting. The decision was announced following a meeting of the bank’s Monetary Policy Committee (MPC) held on Monday.
In a statement issued by the MPC, it emphasised the necessity of continuing the current monetary policy stance, characterised by significant positive real interest rates, to drive inflation down to the target range of 5-7pc by September 2025.
The committee cited several factors influencing its decision, including the stabilisation of global commodity prices amid resilient global economic growth and recent geopolitical events adding uncertainty to the outlook. Additionally, forthcoming budgetary measures may have implications for near-term inflation dynamics.
Despite noting a moderate decline in inflation, with headline inflation dropping to 20.7 per cent year-on-year in March and core inflation decreasing significantly to 15.7 per cent, the MPC deemed inflation levels to remain high. It attributed this decline to coordinated tight monetary and fiscal policies, along with other factors such as lower global commodity prices and improved food supplies.
The MPC acknowledged macroeconomic stabilisation measures contributing to improvements in both inflation and the external position, amidst a moderate economic recovery driven by a strong rebound in the agriculture sector.
Furthermore, the committee observed a sizable surplus in the current account in March 2024, which aided in stabilising the SBP’s foreign exchange reserves despite significant debt repayments and weak financial inflows.
Aligning its stance with leading central banks globally, particularly those in advanced economies, the SBP emphasised a cautious policy approach amid recent signs of a slowdown in the pace of disinflation.
In light of the inflation outlook being susceptible to risks stemming from global oil price volatility, bottoming out of other commodity prices, and potential inflationary impacts of resolving circular debt in the energy sector and tax-driven fiscal consolidation, the MPC deemed it prudent to maintain the policy rate unchanged.
Today’s decision precedes the conclusion of Pakistan’s $3 billion standby arrangement (SBA) secured from the International Monetary Fund (IMF) last year. The IMF Executive Board is expected to convene later to decide on the final tranche of $1.1 billion.