Mohsin Siddiqui (Chief Reporter)

Amin Lodhi, Director of the Monetary Policy Department at the State Bank of Pakistan (SBP), discusses the recent monetary policy decision in the latest episode of the SBP Podcast series. The Monetary Policy Committee (MPC) of the SBP, on December 12, 2023, opted to maintain the policy rate at 22 percent.

The podcast episode provides a thorough analysis of this decision, offering insights into inflation trends, the reasoning behind keeping the policy rate stable, and the broader global economic context. Lodhi delves into various factors considered by the MPC and their significance in shaping this policy decision, illustrating economic indicators that align with the SBP’s inflation target of 5-7 percent.

The discussion also explores the global landscape, highlighting how some developing economies adjusted policy rates for economic recovery—a contrast to Pakistan’s cautious approach. Lodhi supports this with graphs depicting inflation trends in both emerging and advanced economies.

Despite existing risks, Lodhi emphasizes that Pakistan’s prudent monetary policy decision is influenced by a declining inflation trend and economic factors. He notes that inflation in the country has peaked and is anticipated to trend lower in the coming months. Recent gas tariff hikes contributed to inflation, but Lodhi sees long-term benefits in narrowing the fiscal balance.

Even with unexpected gas price adjustments, the SBP projects a continued downward trend in inflation, citing factors such as moderate aggregate demand, a tight fiscal policy, and a slowdown in monetary aggregates.

The episode concludes with a discussion on the Real Policy Rate on a 12-month forward-looking basis. Lodhi explains the calculation and underscores the importance of forward-looking policy decisions, considering the monetary policy transmission lag.