Editorial

Unchanged policy rate

SBP admits that inflation will be higher than it had previously projected, raising its annual estimate to almost 25%

January 31, 2024

The State Bank’s decision to keep the interest rate at 22% despite a steady decline in inflation rate was not completely surprising, since it will allow the elected government the opportunity to discuss future strategies with the bank instead of forcing it to potentially inherit a new inflation spike driven by lower rates. The bank also admitted that inflation will be higher than it had previously projected, raising its annual estimate to almost 25%. Many experts have said for several months that the policy rate needs to be brought down to encourage an economic turnaround, while defenders of the high rate note that record-high inflation would be even higher if the rate was cut, likely eating into the positives that come with higher economic growth.

But while a high rate has clearly stunted economic growth, and inflation has remained unsustainably high, almost six months of high rate have not been without achievements, and State Bank Governor Jameel Ahmad was keen to point this out, noting that a significant rise in foreign exchange reserves has taken the country from the brink of bankruptcy to a slightly less dangerous cliff. That rise has been influenced, among other things, by lower import demand due to economic stagnation. But the country has also been able to pay off a large amount of foreign debt —over $6 billion — while doubling reserves to over $8 billion.

The current account deficit — which actually turned into a surplus for a little while last year at the peak of import restrictions — has also defied expectations to remain quite low. The SBP chief believes this will continue and help create wiggle room for upcoming debt repayments. And even if the State Bank’s 3% economic growth projection remains optimistic, at least the incoming government will have the leeway to chart a path to growth, rather than scrambling to avoid bankruptcy on day one. In this sense, it may not have been pretty, but the rate hike has fixed some major problems, at least in the short term.

Published in The Express Tribune, January 31^st, 2024.

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COMMENTS (2)

Muhammad Javed | 9 months ago | Reply I am 75 plus Pakistani origin. Without any hesitation proudly I can claim that I am a true patriotic Pakistani. At the same time today in this old age when there is no return I realised I spent my life as a fool. To quote I started in 1966 from Pakistan s most lucrative Income Tax Department. Yet till in this old age I am leaving no roof of my own for my family. While for forty years abroad I never sold visas brought cars to Pakistan in others names hide any customable item into my luggage etc. 2. The life s biggest mistake I made rather a cruel injustice for my old age wife and the single child my daughter that I put my retirement dues in Pakistan National Savings against advice of my colleagues like even the Bank top to keep the money in Bahrain where there are no ever changing conditions question of withholding tax filer or non filer etc. When I invested Rs 4 million saving certificates came to me from National Savings Karachi by registered mail but since two years but since two years my National Savings Pass Book is held with the Center which as I am told and the Federal Ombudsman believes it to under its new rule unwritten it can t be sent by mail and I will have to collect personally. I am also told to withdraw say Rs. 100 000 I would need to visit Pakistan @ expense of Rs. 2 lac or otherwise through a relative which relative will first go to court appear before a magistrate to undertake that on receipt of this Rs. 100 000 he would arrange sending money to me and would not digest whole or part of it. Had I any wisdom and acted on sincere advice of or followed suit other Pakistanis in keeping my money here my above four millions due to depreciation of Pakistani currency acute continuous depreciation of purchase value of my invest monety would had stood at around Rs. 12 million plus. 3. I have today no trust on our Governments since about three decades. Each successive Sindh Government lied to me that it would soon turn Karachi into Singapore. But in practice it snatched from me even the current Karachi and made it more worst. Likewise the Federal Government too lied. 4. The National Savings products are sold on the slogan of Government guarantee . Where is that guarantee when withholding tax is increased or filer non filer is imposed. 5. Due to old age the year I can t recall but in the then Budget Speech it was announced that under new policy the National Savings rates revision is being linked with the SBP policy rate. The word used was the National Schemes and there was not a single word that this would be at the personal discretion of the National Saving wizards on which product scheme this rate to be revised and on which one not. 6. The National Savings fooling the nation since long revise rate of interest on this product leave that one. Recently while the SBP kept its policy rate unchanged cementing that our Governments are not trust worthy the National Savings have decreased rates on some of its products. According to newspapers the National Savings have second time reduced the rates of profits yesterday. Muhammad Javed Bahrain

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