SBP keeps policy rate unchanged at 7% for next two months

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SBP keeps policy rate unchanged at 7% for next two months

KARACHI – The State Bank of Pakistan (SBP) on Friday kept the policy rate unchanged at 7% for the next two months with a view that to bring economic stability and mitigate inflation in the country.

The central bank in a statement said that the decision was taken by Monetary Policy Committee (MPC) after reviewing the current economic situation.

“With the inflation outlook relatively benign aside from the possibility of temporary supply-side shocks, the MPC felt that the existing accommodative stance of monetary policy remained appropriate to support the nascent recovery while keeping inflation expectationswell-anchored and maintaining financial stability,” read the official statement.

This is the third time that SBP kept the policy rate unchanged after massively dropping it by 625 basis points, down from 13.25pc, at the time when the coronavirus pandemic shook the global economies in February.

The MPC noted that since the last meeting in November, the domestic recovery has gained some further traction. Most economic activity data and indicators of consumer and business sentiment have shown continued improvement. As a result, there are upside risks to the current growth projection of slightly above 2 percent in FY21.

On the inflation front, recent out-turns are also encouraging, suggesting a waning of supply-side price pressures from food and still-benign core inflation. While utility tariff increases may cause an uptick in inflation, this is likely to be transient given excess capacity in the economy and wellanchored inflation expectations.

As a result, inflation is still expected to fall within the previously announced range of 7-9 percent for FY21 and trend toward the 5-7 percent target range over the medium-term, said the SBP.

In the absence of unforeseen developments, the MPC expects monetary policy settings to remain unchanged in the near term.
SBP Governor Reza Baqir, in a press conference after the MPC meeting said that monetary policy settings are expected to remain unchanged in the near term.

He added that the interest rate would not see a sudden and drastic change, adding that it would be revised in an orderly manner.

Talking about the current account surplus, the SBP head said that the authorities had decided to switch from a controlled one to a market-based exchange rate.

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