Monetary policy: SBP leaves interest rate unchanged at 13.25%

Announcement largely in line with market expectations

KARACHI: In line with market expectations, the State Bank of Pakistan (SBP) left the key interest rate unchanged at an eight-year high of 13.25% for the next two months.

The SBP Monetary Policy Committee (MPC) announced status quo in the rate to control inflation. The inflation was recorded at 10.5% against the expectation for over 11% in August 2019. The reading came lower than expectation following change in base year to 2015-16 from 2007-08.

Chances for uptick in inflation reading remain bleak following settlement of related issues in domestic economy. However, likely increase in international oil prices remains a strong threat to the economy, as Pakistan meets its 70-80% energy needs through imports.

Earlier, the central bank had hiked the key interest rate by a massive 7.5% in the past two-and-half-year to 13.25% in July.

Majority of the analysts were of the firm opinion that the interest rate has peaked out and a rate cut was imminent to let economic activities revive.

The economic growth slowed down to nine-year low at 3.3% in the previous fiscal year ended June 30, 2019. The high interest rate regime caused the slowdown, but fought hard against inflation and helped in narrowing down current account deficit, which had battered foreign currency reserves.

The central bank also let the rupee aggressively depreciated to fix the faltering economy. The currency depreciated 52% since December 2017 to Rs160.05 to the US dollar on June 30, 2019.