State Bank of Pakistan holds policy rate steady at 22pc 

Economic recovery expected in FY24, real GDP growth projected at 2-3pc 

KARACHI: The State Bank of Pakistan (SBP) has made the decision to maintain the policy rate at 22 percent. This announcement was conveyed by SBP Governor Jameel Ahmad during a press conference held after the meeting of the Monetary Policy Committee (MPC) today.

In the statement issued following the MPC meeting, it was noted that the economic uncertainty has decreased compared to the previous meeting, and the challenges in the external sector have been largely addressed. Moreover, there has been an improvement in investor confidence.

Although some risks to inflation have emerged, the committee acknowledged the positive impact of the previous monetary tightening, budgetary fiscal consolidation, and the cautious growth outlook for FY24. The committee also observed that inflation is expected to decline over the next 12 months, resulting in a significant level of positive real interest rate.

The MPC highlighted some key developments since the last meeting on June 26. Firstly, Pakistan has secured a nine-month Stand-By Arrangement (SBA) with the IMF, which has helped stabilize the external sector by boosting foreign exchange reserves. Secondly, the government has implemented additional tax measures and increased electricity tariffs, which may contribute to inflation in the coming months. Thirdly, global commodity prices have increased but remain lower than their recent peak. Lastly, the IMF has slightly raised its projection for global growth in July 2023.

Considering these developments, the MPC emphasized the need for a tight monetary policy with positive real interest rates to achieve the medium-term inflation target of 5-7 percent by the end of FY25.

Looking ahead, the MPC expects a moderate economic recovery in FY24, supported by improved rice and cotton output. The outlook for manufacturing, construction, and allied services has also improved due to better business confidence and a withdrawal of priority guidance on imports. However, the impact of previous monetary tightening and expected fiscal consolidation is expected to keep growth range-bound, projecting a real GDP growth in the range of 2 to 3 percent for FY24.

In terms of the external sector, the current account deficit is anticipated to remain contained at 0.5 to 1.5 percent of GDP in FY24. The prospects of multilateral and bilateral inflows have improved after the IMF SBA, which is crucial for building external buffers and meeting near-term financing needs.

The MPC projects average inflation to be in the range of 20-22 percent for FY24, down from 29.2 percent in FY23. The expectation is for inflation to gradually decline in the first half of FY24 and fall below 20 percent in the second half. However, this outlook is subject to risks arising from domestic and external shocks, such as adverse climate events and global commodity price volatility. The MPC will closely monitor these developments and may adjust the monetary policy stance if needed to maintain price stability.


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