SBP increases policy rate by 100 bps to 13.25 pc

Karachi, July 16, 2019: The Monetary Policy Committee (MPC) decided to raise the policy rate by 100 bps to 13.25 percent with effect from 17th July 2019. The decision takes into account upside inflationary pressures from exchange rate depreciation since the last MPC meeting on 20th May 2019 and the likely increase in near term inflation from the one-off impact of recent adjustments in utility prices and other measures in the FY20 budget.

The decision also takes into account downside inflation pressures from softening demand indicators. Taking these factors into consideration, the MPC expects average inflation of 11 – 12 percent in FY20, higher than previously projected. Nevertheless, inflation is expected to fall considerably in FY21 as the one-off effect of some of the causes of the recent rise in inflation diminishes.

After the meeting governor addressing a press conference informed that the committee has decided to further tighten the monetary policy as inflation outlook is higher side.

The inflation is likely to grow in the upcoming months and projected inflation is 11 to 12 percent for the next fiscal year.

The monetary policy committee will review the measures and will take further steps to curb inflation and soften domestic demand.

Real interest rate is as per economy condition, he added.

He said that with an increase in the key policy rate, depositors will get good profit rates on their savings.

Read More: Tightening to continue with 100bps hike expected

The inflation is likely to reduce in the second half of this fiscal year and the committee will reduce the interest rate when inflation will come down.

The tight monetary policy measures are temporary and the policy will be eased, when the economy will improve.

The decision is as per marker expectations and will not create panic in the meeting, governor said.

“We can’t forecast right now for the future decisions about the interest rate and next committee will review all economic indicators in the next meeting to held in September to take a decision on the policy rate”, he added.

Abid Qamar Chief Spokesman SBP, Jamil Ahmed Deputy Governor SBP, Muhammad Ali Malik head of monetary policy department and Ali Chaudary of Research Department of SBP were also present at the press conference.

The today’s tight monetary policy decision is good news for those, which have deposits in Pakistani Rupee as now they will get more or higher profit on their deposits.

The current exchange rate is market base and the dollar is moving upward and downward slide as per market mechanism, he added.

Read More: Vulnerabilities in external and fiscal deficit persists

The current account balance was zero in the past, but gradually increase and touched the two-billion-dollar mark. However, right now the current account is moving toward improvement and without oil imports, current account deficit is zero, the governor SBP said.

He said that a number of people are not paying tax and some measures have been taken to broaden the tax net.

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