Pakistan’s central bank maintained its benchmark interest rate at a record high of 21 percent, in line with market forecasts.
1/3 At its meeting today, Monetary Policy Committee (MPC) of #SBP decided to maintain the policy rate at 21%.https://t.co/mjQgHmMd3B#SBPMonetaryPolicy pic.twitter.com/4GX5J8AahI
— SBP (@StateBank_Pak) June 12, 2023
The bank continues to believe that the interest rate was reasonable given that inflation peaked in May at 38% and is predicted to begin to decline from June forward.
In its monetary policy statement issued on Monday, the State Bank of Pakistan (SBP) stated “MPC (monetary policy committee) 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 emphasized that this outlook is also contingent on effectively addressing the prevailing domestic uncertainty and external vulnerabilities.”
The bank added that, overall, higher inflation results for April and May were as expected. In light of the tight monetary policy, domestic unrest, and ongoing pressure on the external account, the committee anticipates that domestic demand will remain weak.
Rise In Interest In Current FY22-23
Recall that in the current fiscal year, which ends June 30, 2023, the central bank has raised the interest rate by a total of 7.25 percentage points.
The International Monetary Fund (IMF) recommended raising the rate in part in order to get its $6 billion loan program moving again before it expired with the end of FY23.
Since their last meeting, the committee has taken notice of numerous significant developments. First, the provisional National Accounts estimates indicate that real GDP growth significantly slowed down in FY23.
Second, there were consecutive surpluses in the current account balance in March and April 2023, which lessened some of the burden on foreign exchange reserves.
Third, the government unveiled the budget for FY24 on June 9, “which envisages a slightly contractionary fiscal stance against the revised estimates for FY23”.
Fourth, recent declines in commodity prices and financial circumstances around the world are anticipated to last for the foreseeable future.
From June 2023 onward, the MPC anticipates that lower demand-side pressures, easing inflation expectations, moderating global commodity prices, and a large base effect will all contribute to lower inflation.
“In this context, the MPC views that maintaining the current policy stance is necessary to bring inflation down to the medium-term target range of 5-7% by the end of FY25”.
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