KARACHI, Pakistan: The State Bank of Pakistan (SBP) on Monday decided to keep the interest rate unchanged at 15 percent.
In its meeting held in Karachi, the Monetary Policy Committee (MPC) decided to maintain the policy rate at 15 percent.
The MPC noted the continued deceleration in economic activity as well as the decline in headline inflation and the current account deficit since the last meeting.
It also noted that the recent floods have altered the macroeconomic outlook and a fuller assessment of their impact is underway.
Based on currently available information, the MPC was of the view that the existing monetary policy stance strikes an appropriate balance between managing inflation and maintaining growth in the wake of the floods.
On the one hand, inflation could be higher and more persistent due to the supply shock to food prices, and it is important to ensure that this additional impetus does not spillover into broader prices in the economy.
On the other, growth prospects have weakened which should reduce demand-side pressures and suppress underlying inflation.
In light of these offsetting considerations, the MPC considered it prudent to leave monetary policy settings unchanged at this stage.
GDP growth to fall around 2% in FY 2023: State Bank
In its meeting, the MPC also discussed the post-flood macroeconomic outlook, noting that projections are still preliminary and would become firmer after the flood damage assessment being conducted by the government is finalized.
Based on currently available information, the Gross Domestic Product (GDP) growth could fall to around 2 percent in Fiscal Year (FY) 2023, compared to the previous forecast of 3-4 percent before the floods.
Meanwhile, higher food prices could raise average headline inflation in FY 2023 somewhat above the pre-flood projection of 18-20 percent.
The impact on the current account deficit is likely to be muted, with pressures from higher food and cotton imports and lower textile exports largely offset by slower domestic demand and lower global commodity prices.
As a result, any deterioration in the current account deficit is expected to be contained, still leaving it in the vicinity of the previously forecast 3 percent of GDP.
