Monetary Policy: SBP kept the interest rate at 22%

Exterior of the State Bank of Pakistan building in Karachi.  - AFP/File
Exterior of the State Bank of Pakistan building in Karachi. – AFP/File
  • MPC’s decision is in line with market expectations.
  • Interest rates unchanged for the next one and a half months.
  • MPC says inflation rose in September 2023 as expected.

The State Bank of Pakistan (SBP) on Monday decided to keep the key policy rate at 22% with the next announcement on December 12, in line with market expectations.

“At its meeting today, the Monetary Policy Committee (MPC) decided to keep the policy rate unchanged at 22 per cent,” the central bank said in a statement.

The committee said headline inflation rose as expected in September 2023 (31.4%) – a key factor in determining the key policy rate.

However, the SBP said, the decline is expected to decline in October and then the downward trend is expected to persist, especially in the second half of the financial year.

The MPC expects inflation to decline significantly in October due to downward adjustment in fuel prices, decline in prices of some key food items and favorable base effect.

“The Committee also reaffirms its earlier assessment that, barring any major adverse developments, inflation will decline significantly from the second half of FY2024 onwards,” it said.

The central bank acknowledged that recent volatility in global oil prices as well as the increase in gas tariffs since November pose some risks to the FY24 outlook for inflation and the current account.

“The Committee also noted some offsetting factors: these include targeted fiscal consolidation in Q1; improved market availability of key commodities and the alignment of interbank and open market exchange rates.”

The MPC noted four key developments since its September meeting –

  • Initial estimates of Kharif crops are encouraging and will have a positive impact on other key sectors of the economy.
  • Second, the current account deficit narrowed significantly in August and September, which helped stabilize the SBP’s FX reserves position amid weak external financing in these two months.
  • Fiscal consolidation remained on track, with both fiscal and primary balances improving during Q1-FY24.
  • While core inflation remains stable, inflation expectations of both consumers and businesses improved in the latest Pulse surveys.

The SBP said that in view of these developments, the MPC insisted on continuing the accommodative monetary policy stance.

The MPC reiterated its earlier view that the real policy rate remains quite positive on a 12-month forward-looking basis and is appropriate for bringing down inflation to the end-to-medium term target of 5-7 per cent, the statement said. FY 25.

“However, the MPC noted that this approach is based on continued fiscal consolidation and timely realization of planned external flows,” the central bank statement said.

Since the last MPC meeting on September 14, when the interest rate was kept unchanged, there have been several developments – appreciation of the rupee, decline in petrol prices, expected inflation, current account deficit and drawdown in foreign exchange reserves.

Raza Jafri, head of equities at Intermarket Securities, told Geo.TV that the SBP is unlikely to move further during the International Monetary Fund (IMF) review and it is no surprise that the policy rate was kept unchanged at 22%. Is.

However, he said, it appears to be laying the groundwork for future interest rate cuts, especially if the IMF review is successful and international oil prices remain under control.

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