The State Bank of Pakistan (SBP) on Monday announced it is maintaining the key policy rate at 22 percent, with Governor Jameel Ahmed saying the decision was taken in light of a decline in inflation last month.
Addressing a press conference after a meeting of the Monetary Policy Committee (MPC), he said the central bank expected economic growth to remain between 2-3% over the next year. To a question, he said the government had lifted all import restrictions, adding it was now up to individual banks to decide how to allocate letters of credit for businesses.
To another question, he said the country’s foreign exchange reserves had climbed by $4.2 billion to $8.2 billion in July due to inflows from the International Monetary Fund (IMF) and friendly countries. He claimed this figure would improve further in December, claiming several loans would be rolled over in the coming months.
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In a statement issued following the meeting, the MPC noted that economic uncertainty had decreased since its last meeting in June, with near-term external sector challenges largely addressed and investor confidence improving. Acknowledging that some upside risks to the inflationary outlook remained, it said the MPC had also noted the expected lagged impact of the accumulated monetary tightening so far, budgeted fiscal consolidation, and the tepid growth outlook for FY24. “The MPC particularly noted that year-on-year inflation is likely to remain on a downward path over the next 12 months, which implies a significant level of positive real interest rate,” it added.
On the short-term macroeconomic outlook since its last meeting, the MPC said Pakistan had secured a nine-month stand-by arrangement with the IMF that had helped address immediate external sector stability concerns by supporting foreign exchange reserves. Following the first disbursement of the $3 billion program, it said, the SBP’s reserves had increased from $4.5 billion at the end of June 2023 to $8.2 billion as of July 21, 2023.
However, it said, the additional tax measures introduced in the budget, as well as a recent increase in electricity tariffs would contribute to inflation in the coming months.
The MPC also noted that global commodity prices had somewhat increased but were still lower than their recent peak, while recognizing that the IMF in its July 2023 World Economic Outlook had slightly raised its global growth projection this year while leaving the 2024 growth projection unchanged. In light of all these developments, the MPC emphasized maintaining an appropriately tight monetary policy stance with positive real interest rates on a forward-looking basis to keep inflation and its expectation on downward path so as to achieve the medium-term inflation target of 5–7% by end-FY25.