The State Bank of Pakistan (SBP) kept the 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 power tariffs last week,” the central bank said in a statement released after the meeting.
High-frequency indications show that growth is continuing to reduce to a more sustainable pace, according to the report.
Read more: SBP increases policy rate by 25bps to 7.25 percent after a 15-month gap
The first meeting of 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 adjustable rupee-dollar parity are the two main tools that central banks around the world use to control inflation and steer the economic trajectory of their respective countries.
From September to December 2021, State bank lifted the major policy rate by 275 basis points to 9.75 percent in order to contain increasing inflation and narrow the growing current account deficit, while economic activity remained strong.
While existing real interest rates are adequate on a forward-looking basis to direct inflation to the medium-term range of 5-7 percent, support growth, and maintain external stability, the MPC noted that the Russia-Ukraine conflict has added an amount of uncertainty to the outlook for international commodity prices and global financial conditions.
“Continued poor conditions on these fronts could 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 volatile, the MPC stated that it is willing to convene sooner than the next scheduled MPC meeting in late April if appropriate to take any prompt and calibrated action to protect external and price stability.
Despite increased inflation and the rupee’s recent devaluation, the central bank retained the policy rate for the third consecutive monetary policy statement (MPS) to encourage economic activity recovery.
