SBP Keeps Policy Rate Unchanged at 22%

The Monetary Policy Committee of the State Bank of Pakistan (SBP) decided to keep the policy rate unchanged at 22 percent due to ongoing concerns about high inflation, despite a recent decrease. They emphasized the need for a cautious approach to bring inflation down to the target range of 5-7 percent by September 2025, contingent upon fiscal consolidation and external inflows.

Key Developments

Recent data shows moderate economic growth, particularly in agriculture, and better-than-expected external current account balance. Inflation expectations have risen, globally and domestically. Major central banks globally continue to adopt a cautious monetary policy stance.

Real Sector

Economic data supports expectations of a moderate recovery, driven by agriculture. Prospects for wheat crops look promising, and industrial output is expected to improve. Leading indicators suggest a gradual recovery in the services sector.

External Sector

The current account deficit has decreased significantly, primarily due to increased exports and reduced imports. Remittances have risen consistently, but financial inflows saw a modest decline in January. The deficit is expected to remain manageable, supporting foreign reserves.

Fiscal Sector

Continued fiscal consolidation is evident, with improved revenue collection contributing to a primary surplus. However, increased interest payments and reliance on domestic financing led to a slight expansion in the overall deficit. Fiscal discipline is crucial for macroeconomic stability.

Money and Credit

Money growth has slowed, mainly due to reduced private sector credit. Reserve money growth has decelerated, and the currency to deposit ratio continues to decline. These trends are favorable for managing inflation.

Inflation Outlook

Inflation has decreased significantly year-on-year, driven by monetary and fiscal measures, better food supplies, and moderating global commodity prices. However, adjustments in energy prices continue to impact inflation. The committee remains cautious due to potential risks from further price adjustments or fiscal measures.

You can download the complete Monetary Policy statement here: https://www.sbp.org.pk/m_policy/2024/MPS-Mar-2024-Eng.pdf

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