KARACHI, Pakistan: The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) has decided to keep the policy rate unchanged at 22 percent for the next two months.
In its meeting held on Monday, the MPC noted that the economic uncertainty has decreased since the last meeting whereas near-term external sector challenges have been largely addressed and investor confidence has shown improvement.
While some upside risks to the inflation outlook have emerged, the Committee also took note of the expected lagged impact of the accumulated monetary tightening so far, budgeted fiscal consolidation, and the tepid growth outlook for Fiscal Year (FY) 2024.
The Monetary Policy Committee (MPC) decided to keep the policy rate unchanged at 22.0%, in line with our expectations.@StateBank_Pak#Economy #Pakistan #AHL pic.twitter.com/WLVAS68Lnd
— Arif Habib Limited (@ArifHabibLtd) July 31, 2023
The MPC particularly noted that the year-on-year inflation is likely to remain on downward path over the next 12 months which implies a significant level of positive real interest rate.
Since the MPC meeting held on June 26, several important developments have influenced the short-term macroeconomic outlook.
First, Pakistan has secured a nine-month Stand-By Arrangement (SBA) with the International Monetary Fund (IMF) that has helped address immediate external sector stability concerns by supporting the foreign exchange reserves.
With disbursement of the first tranche under the SBA and US$ 3 billion in bilateral support, the SBP’s Foreign Exchange reserves increased from US$ 4.5 billion at end June 2023 to US$ 8.2 billion as of July 21, 2023.
Second, on top of the additional tax measures introduced at the time of approval of the budget, the government has notified an increase in electricity tariffs which would contribute to inflation in coming months.
Third, the global commodity prices have somewhat increased but are still lower than their recent peak.
Fourth, the IMF in its July 2023 World Economic Outlook has slightly raised its projection of global growth this year while leaving the 2024 growth projection unchanged.
In light of these developments, the MPC stressed on maintaining an appropriately tight monetary policy stance with positive real interest rates on forward looking basis to keep inflation and its expectation on downward path so as to achieve the medium-term inflation target of 5–7 percent by end-FY 2025.
Inflation to remain 20 to 22% in FY 2023-24
Meanwhile, the Monetary Policy Committee has projected the average annual inflation in the range of 20-22 percent in the ongoing Financial Year 2023-24, down from 29.2 percent in the last FY 2022-23.
