On Monday, the State Bank of Pakistan (SBP) chose to maintain the policy rate at 15%.
The Monetary Policy Committee (MPC) opted to keep the policy rate at 15% at the meeting that took place today in Karachi, according to a news release published by the SBP. The MPC took notice of the economy’s ongoing slowdown, as well as the decreases in headline inflation and the current account deficit since their previous meeting.
Additionally, it stated that a more thorough analysis of the effects of the recent floods, which have changed the macroeconomic outlook, is now ongoing. The MPC believed that the current monetary policy position strikes an adequate balance between controlling inflation and preserving growth in the aftermath of the floods based on the information that is currently available. On the one hand, the supply shock to food prices may cause inflation to be larger and more persistent; thus, it is crucial to make sure that this extra stimulus does not spread to other prices across the economy.
However, the outlook for growth has dimmed, which should lessen demand-side pressures and hold down underlying inflation. The MPC concluded that it was reasonable to maintain the current monetary policy settings in light of these compensating factors.
“The MPC observed a number of significant developments since the previous meeting. First, the anticipated economic activity deceleration is more apparent and persistent, indicating that the tightening measures put in place during the previous year are working.
Future adjustments to this tightening will need to be made with great caution, as it is anticipated that development will drop much more in the wake of the floods. Second, thanks to an administrative reduction in power rates, headline inflation dropped last month after reaching its anticipated peak in August. Core inflation, however, kept moving up in both urban and rural areas. Third, the Rupee has recovered some of its losses from the recent depreciation, and the current account and trade deficits both notably decreased in August and September, respectively.
Fourth, on August 29th, the IMF program’s combined 7th and 8th review was successfully finished, releasing a tranche of $1.2 billion.
