The State Bank of Pakistan (SBP) has decided to keep the policy rate unchanged at 21 per cent for the next two months, according to a press release issued on Monday.
The announcement came after a meeting of the bank’s Monetary Policy Committee (MPC).
“The MPC assessed inflation is more likely to have peaked in May 2023. Weak domestic demand; ease in inflation expectations of consumers and businesses; downward trend in global commodity prices; and high base effect, are the major determining factors behind this assessment,” the central bank’s statement said.
It stated that the MPC expected the domestic demand to “remain subdued amid tight stance, domestic uncertainty and continuing stress on external account”.
“In this backdrop, and given the declining m/m trend, the MPC views inflation to have peaked at 38pc in May 2023, and barring any unforeseen developments, expects it to start falling from June onwards,” it stated.
The committee noted in the press release that multiple important developments had taken place since the last meeting.
“First, the provision al national accounts estimates show real GDP (gross domestic product) growth to have decelerated considerably during FY23.
“Second, the current account balance recorded back-to-back surpluses in March and April 2023, which reduced some pressures on foreign exchange reserves,” it said.
Thirdly, the press release highlighted that the government had unveiled the budget for FY24 on June 9 which “envisages a slightly contractionary fiscal stance against the revised estimates for FY23”.
Fourth, the global commodity prices and financial conditions have eased recently and are expected to persist in near term, it added.
The MPC also took stock of the cumulative impact of the substantial monetary tightening undertaken so far, which “is still unfolding”.
“On balance, the MPC views the current monetary policy stance, with positive real interest rates on forward looking basis, as appropriate to anchor inflation expectations and to bring down inflation towards the medium term target — barring any unexpected domestic and external shocks.
“However, the MPC emphasised that this outlook is also contingent on effectively addressing the prevailing domestic uncertainty and external vulnerabilities,” the press release added.
