KARACHI: The State Bank of Pakistan (SBP) kept the benchmark interest rate at 9.75 percent for the next six weeks, in line with market expectations, as the outlook for inflation has improved.
“This decision reflected the Monetary Policy Committee’s (MPC) view that the outlook for inflation has improved following the government’s relief package’s announcement of lower fuel prices and electricity tariffs last week,” the central bank said in a statement released after the meeting.
High-frequency indicators suggest that growth is continuing to moderate to a more sustainable pace, according to the report.
“Despite the significant uncertainty about the future path of global energy and food prices due to the Russia-Ukraine conflict,” the statement read, “this moderation should help keep demand-side inflation pressures at bay and contain non-oil imports.”
The first meeting of the Monetary Policy Committee (MPC) since the commencement of the Ukraine-Russia war, which is threatening the national economy and hurting the stock market, was held today.
The interest rate and the variable rupee-dollar parity are the two primary weapons that central banks across the globe use to manage inflation and steer the economic trajectory of their individual nations.
From September to December 2021, the central bank lifted the key policy rate by 275 basis points to 9.75 percent in order to contain increasing inflation and reduce the growing current account deficit, although economic activity remained strong.
“Looking ahead, the MPC noted that, while current real interest rates are appropriate for guiding inflation to a medium-term range of 5-7 percent, supporting growth, and maintaining external stability on a forward-looking basis, the Russia-Ukraine conflict has introduced a high degree of uncertainty in the outlook for international commodity prices and global financial conditions.”
“Continued poor circumstances on both fronts might complicate the outlook for the current account deficit and inflation expectations, necessitating policy rate modifications,” it said.
Because the situation between Russia and Ukraine is still fluid, the MPC said that it is prepared to convene sooner than the next planned MPC meeting in late April if required to take any necessary promptly and calibrated action to protect external and price stability.
Despite increased inflation and the rupee’s recent devaluation, the central bank maintained the policy rate for the third consecutive monetary policy statement (MPS) to encourage economic activity recovery.