KARACHI – The Monetary Policy Committee (MPC) of the State Bank of Pakistan Monday announced to maintain the policy rate at 9.75 per cent.
In reaching its decision, the MPC considered the measures taken to lower inflation and keep the ongoing economic recovery sustainable.
These measures include a cumulative 275 basis point increase in the policy rate, higher bank cash reserve requirements, regulatory tightening of consumer finance, and curtailment of non-essential imports, the committee noted.
Since the last meeting on 14th December 2021, several developments suggest that these demand moderating measures are gaining traction and have improved the outlook for inflation.
Recent economic growth indicators are appropriately moderating to a more sustainable pace. While year-on-year headline inflation is high and will likely remain so in the near term due to base effects and energy prices, the momentum in inflation has slowed with month-on-month inflation flat in December compared to a significant rise of 3 percent in November. Inflation expectations of businesses have also declined considerably, it added.
The current account deficit appears to have stopped growing since November and the non-oil current account balance is expected to achieve a small surplus for FY22.
SBP said that the enactment of the recent Finance (Supplementary) Act, 2022 represents significant additional fiscal consolidation compared to the budget and has lowered the outlook for inflation in FY23.
The MPC was of the view that current real interest rates on a forward-looking basis are appropriate to guide inflation to the medium-term range of 5-7 percent, support growth, and maintain external stability. If future data outturns require a fine-tuning of monetary policy settings, the MPC expected that any change would be relatively modest.
