Mohsin Siddiqui (Chief Reporter)
State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) has opted to retain the key policy rate at 22%, citing continued high inflation attributed to escalating energy prices.
During a press conference in Karachi, SBP Governor Jameel Ahmad expressed concern over the persistent inflationary pressures, necessitating an upward revision of the annual target to 23-25%.
This decision, maintaining the policy rate for the fifth consecutive time, marks the final move under the caretaker government ahead of next month’s general election. It occurs amidst Pakistan’s ongoing $3 billion Standby Arrangement (SBA) with the International Monetary Fund (IMF).
Attributing the decision to the escalating inflation, Ahmad highlighted the SBP’s anticipation of a gradual easing from December’s peak of 29.7%.
While the central bank forecasted average inflation to hover around 23-25% throughout the year, with a notable decline expected from March onwards, Tahir Abbas, head of research at Arif Habib Limited, noted the SBP’s cautious stance, opting to await further economic indicators before initiating a monetary easing cycle.
Echoing the SBP’s outlook, Abbas predicted a substantial reduction in inflation due to improving economic indicators, anticipating subsequent policy rate adjustments.
Ahmad also acknowledged improvements in Pakistan’s foreign exchange reserves and external accounts, with expectations of a decline in the current account deficit.
Despite the inflationary concerns, Ahmad reassured that the SBP foresees a swift reduction in the inflation rate starting from March.
Notably, Pakistan raised its interest rate to an all-time high of 22% in June 2023 to meet IMF bailout conditions and tackle persistent inflationary pressures. However, while the rescue program averted a sovereign debt default, attached conditions such as increased utility rates and benchmark interest rates have complicated inflation control, impacting business confidence adversely.
Despite calls from the business community for a rate cut to alleviate economic challenges, the SBP’s decision reflects a cautious approach in balancing inflation management with broader economic stability goals.
