\u201cThe MPC noted that while inflation is coming down as expected, it is still high,\u201d reads central bank\u2019s statement
\nIslamabad
\nThe State Bank of Pakistan (SBP) on Monday decided to maintain the status quo by keeping the key policy rate unchanged at 22% for the seventh time in a row.
\nIn its meeting today, the Monetary Policy Committee (MPC) noted that the macroeconomic stabilisation measures are contributing to considerable improvement in both inflation and external position, amidst moderate economic recovery.
\n\u201cHowever, the MPC viewed that the level of inflation is still high. At the same time, global commodity prices appear to have bottomed out with resilient global growth,\u201d as per a statement issued following the meeting.
\nThe MPC said recent geopolitical events have also added uncertainty about their outlook. Moreover, the upcoming budgetary measures may have implications for the near-term inflation outlook, it added.
\nOn balance, the committee stressed on continuation of the current monetary policy stance to bring inflation down to the target range of 5 to 7% by September 2025.
\n\u2018Current account recorded sizable surplus\u2019
\nThe MPC said data for the first half of the fiscal year 2024 suggested that economic activity is recovering at a moderate pace, led by strong rebound in the agriculture sector.
\nMoreover, the current account recorded a sizable surplus in March 2024, which helped to stabilise the SBP\u2019s foreign exchange reserves despite substantial debt repayments and weak financial inflows, as per the communique.
\n\u201cThird, inflation expectations of consumers inched up in April 2024, whereas those for businesses declined. And lastly, leading central banks particularly in advanced economies have adopted cautious policy stance after noticing some slowdown in the pace of disinflation in recent months.\u201d
\nIt further said that incoming data continues to support the MPC\u2019s earlier expectation of a moderate recovery in this fiscal year with real GDP growth projected to remain in the range of 2 to 3%. The agriculture sector remains the key driver with robust 6.8% growth in the first half of FY24.
\nIn the industrial sector, large-scale manufacturing reported a 0.5% decline in July-February FY24 compared to a 4.0% contraction recorded in the same period last year while the services sector\u2019s growth in the first half was slightly lower than expected, reflecting the impact of subdued demand.
\nExternal sector
\nThe current account has turned out better than expected, recording a sizable surplus of $619 million in March 2024, mainly owing to the Eid-related surge in workers\u2019 remittances.
\nCumulatively, the current account deficit narrowed by 87.5% to $0.5 billion during July-March FY24 as compared to the same period last year.
\n\u201cExports continue to exhibit steady growth \u2013 led by rice \u2013 while imports have decreased in the wake of better domestic agriculture output and moderate economic activity.\u201d said the MPC.
\nThe reduction in the current account deficit \u2014 amidst weak financial inflows \u2014 allowed SBP to make sizable debt repayments, including that of a $1 billion Eurobond, while sustaining the SBP\u2019s forex reserves around $8.0 billion, as per the statement.
\n\u201cThe MPC emphasised that a further build-up in FX buffers is essential to enhance the country\u2019s ability to effectively respond to external shocks and support sustainable economic growth.\u201d
\nInflation outlook
\nIn line with the MPC\u2019s expectations, inflation has continued to moderate noticeably in the second half of FY24.
\nIt said headline inflation in March declined to 20.7% year-on-year from 23.1% in February. In the same period, core inflation fell significantly to 15.7% from 18.1% in February.
\nBesides the coordinated tight monetary and fiscal policy response, other factors that have led to this favorable outcome include lower global commodity prices, improved food supplies and high base effect.
\nThe MPC expected inflation to continue to remain on a downward trajectory. However, the MPC also noted that this inflation outlook is susceptible to risks emanating from the recent global oil price volatility along with the bottoming out of other commodity prices; the potential inflationary impact of resolution of circular debt in the energy sector; and tax rate-driven fiscal consolidation going forward.
\n\u201cCognizant of these risks, the Committee assessed that it is prudent to continue with the current monetary policy stance at this stage, with significant positive real interest rates.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
\u201cThe MPC noted that while inflation is coming down as expected, it is still high,\u201d reads central bank\u2019s statement Islamabad The State Bank of Pakistan (SBP) on Monday decided to maintain the status quo by keeping the key policy rate unchanged at 22% for the seventh time in a row. In its meeting today, the […]<\/p>\n","protected":false},"author":2,"featured_media":377848,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"class_list":{"0":"post-403611","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-top-news"},"yoast_head":"\n