In a stunning move, State Bank of Pakistan (SBP) left its benchmark policy rate – the cost of bank borrowing – steady at 22% on Thursday, defying predictions of a 300-basis-point raise.
The announcement indicated that the country’s economy was gradually but steadily improving.
SBP Decision Not To Raise Policy Rates
The State Bank of Pakistan (SBP) stated that inflation peaked at 38% in May and was relatively low in the first two months (July-August) of the current fiscal year 2023-24, leaving no opportunity for rate hikes, at least for the time being.
On a 12-month ahead basis, the real interest rate has remained positive.
SBP Governor Jameel Ahmad was quoted as saying at an analyst briefing following the announcement of monetary policy that the central bank had successfully met all four quantitative targets set by the International Monetary Fund (IMF) for the first review in November 2023 under the ongoing $3 billion loan program.
External Financing and Debt
Pakistan must get net external financing of $8 billion in the current fiscal year to repay maturing foreign debt, pay external debt interest, and fund the current account deficit.
Despite increased imports, the current account deficit shrank to $160 million in August 2023, from somewhat more than $800 million in July.
Agricultural output has also increased, bolstering economic growth. Furthermore, a crackdown on currency smugglers has yielded beneficial results, aiding the recovery of the Pakistani rupee and increasing the supply of US dollars in the country.
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