Karachi, October 30, 2023: The State Bank of Pakistan (SBP) on Monday decided to maintain its benchmark interest rate – the cost of bank lending – at 22 percent.
At its meeting today, the SBP’s Monetary Policy Committee (MPC), decided to maintain the policy rate at 22 percent.
In a recent meeting, the Monetary Policy Committee (MPC) took stock of the economic landscape in September 2023 and unveiled a cautiously optimistic outlook for the coming fiscal year.
Headline inflation, as anticipated, had risen, but the committee projected a decline in October and a sustained downward trajectory in the second half of the fiscal year. Despite the recent turbulence in global oil prices and the impending increase in gas tariffs, the MPC highlighted several mitigating factors.
The committee pointed to targeted fiscal consolidation in the first quarter, a move aimed at reining in spending and stabilizing the economy.
1/3 Monetary Policy Committee (MPC) of #SBP has decided to maintain policy rate at 22% in its meeting held today. See https://t.co/P8SJRWWQhc#SBPMonetaryPolicy pic.twitter.com/t1ixjs3W5Z
— SBP (@StateBank_Pak) October 30, 2023
Additionally, the availability of key commodities in the market had improved, which could alleviate inflationary pressures. The alignment of interbank and open market exchange rates was seen as a positive step toward maintaining economic stability.
The current account deficit had narrowed significantly in August and September, bolstering the Bank’s foreign exchange reserves amid tepid external financing.
Fiscal consolidation remained on track, with both fiscal and primary balances improving in the first quarter of FY24.
Importantly, inflation expectations among both consumers and businesses improved, despite core inflation holding steady. However, the committee remained cautious due to the ongoing volatility in global oil prices and geopolitical conflicts in the Middle East.
In light of these developments, the MPC emphasised on continuing with the tight monetary policy stance and reiterated that the “real policy rate is significantly positive on forward-looking basis to bring inflation down to 5 – 7 percent by end-FY25”.
However, the committee acknowledged that this outlook hinged on continued fiscal consolidation and the timely realization of planned external inflows.
In the fiscal sector, Q1-FY24 witnessed improvements compared to the previous fiscal year’s first quarter. The fiscal deficit decreased to 0.9 percent of GDP, and the primary balance posted a surplus of 0.4 percent. This improvement was driven by increased revenue collection and controlled spending.
The Federal Board of Revenue (FBR) reported significant revenue growth, while non-tax revenues nearly doubled. Overall expenditures remained stable, supported by reduced subsidies and grants. The MPC underlined the necessity of continued fiscal prudence to keep inflation on a downward trajectory.
The MPC’s assessment presented a cautiously optimistic outlook for Pakistan’s economic future, underpinned by coordinated efforts in fiscal consolidation, prudent monetary policy, and ongoing economic improvements in various sectors.
As the nation navigates the challenges of global economic volatility, the committee remained committed to maintaining stability and driving inflation towards the targeted range.
