SBP keeps policy rate unchanged for fifth consecutive time

Central bank takes cautious approach against likely uptick in inflation readings amid ongoing talks with IMF

KARACHI:

The State Bank of Pakistan (SBP) left its key policy rate unchanged on Monday at a record high of 22% for the fifth consecutive time in the past nine months, taking a cautious approach against a likely uptick in inflation readings amid the ongoing talks with the International Monetary Fund (IMF).

In its latest monetary policy statement for the next six weeks, the central bank maintained that in approaching today’s decision, the monetary policy committee (MPC) noted that inflation has begun to decline noticeably from January 2024 in line with earlier expectations.

"The Committee, however, observed that despite the sharp deceleration in February, the level of inflation remains high and its outlook is susceptible to risks amidst elevated inflation expectations," the statement read.

The uptrend in international oil prices poses a threat of increasing the country's imports and adding imported inflation in the wake of tensions in the Red Sea.

The MPC noted that headline inflation registered a broad-based and considerable year-on-year decline, from 28.3% in January to 23.1% in February.

Read Weekly inflation hits 9-week high

The central bank said that incoming data supports the MPC’s earlier expectation of moderate recovery in economic activity in FY24 with real GDP growth to remain in the range of 2% - 3%.

The committee noted a few key developments since its last meeting in late January, which have implications for the macroeconomic outlook.

First, the latest data continues to depict a moderate pick-up in economic activity, led by a rebound in agriculture output.

Second, the external current account balance is turning out better than anticipated and has helped maintain foreign exchange (FX) buffers despite weak financial inflows.

Third, while inflation expectations of businesses have shown a steady increase since December, those for consumers have also slightly increased in March.

Lastly, on the global front, while the broader trend in commodity prices remained benign, oil prices have increased; partly reflecting the continued instability in the Red Sea. Moreover, amidst uncertainty regarding the inflation outlook, key central banks in both advanced and emerging economies have continued to maintain a cautious monetary policy stance in recent meetings.