The State Bank of Pakistan (SBP) decided to keep the interest rate for banks at 22 percent unchanged. They made this decision during a meeting of their Monetary Policy Committee (MPC).
The committee stressed the importance of keeping a strict monetary policy to reduce inflation to 5-7 percent by the end of fiscal year 2025.
The MPC noted that inflation increased in September 2023 as expected but is expected to go down in October and remain lower in the second half of the fiscal year. They mentioned some concerns about global oil price fluctuations and higher gas tariffs in November 2023, which could impact inflation and the current account. However, they also pointed out some positive factors like improved availability of key commodities and exchange rate alignment.
The committee highlighted positive developments, such as encouraging estimates for crop production and a reduced current account deficit in August and September. Fiscal consolidation efforts were on track, and inflation expectations improved among consumers and businesses.
Despite these positive signs, the MPC remained cautious due to volatile global oil prices and uncertainty in the Middle East. They emphasized the need to maintain a tight monetary policy to meet their inflation target, but this relies on continued fiscal consolidation and timely external funding.
The statement also mentioned positive economic activity data, especially in the manufacturing sector, and expressed optimism that inflation would decrease in the coming months. This decision was made before the International Monetary Fund’s review for the release of a $710 million tranche.
In summary, the SBP has been maintaining a high-interest rate to control inflation and support the external balance. They continue to monitor economic developments and aim to meet their inflation target through a combination of monetary and fiscal policies.
