Infostani International: The State Bank of Pakistan (SBP) has maintained its key rate at 22 percent for the fifth consecutive policy meeting, reflecting ongoing economic stability amidst the $3 billion Standby Arrangement (SBA) with the International Monetary Fund (IMF). Governor Jameel Ahmad emphasized improvements in external accounts and foreign reserves, despite significant debt repayments. The decision underscores the SBP’s focus on inflation, business confidence, and economic growth as the country approaches general elections.
State Bank of Pakistan Maintains Key Rate at 22% Amid Improving External Accounts and Inflation Challenges
On Monday, the State Bank of Pakistan (SBP) announced the continuation of its key rate at 22 percent for the fifth consecutive policy meeting. This decision, occurring under the caretaker government just before the upcoming general elections, coincides with the ongoing $3 billion Standby Arrangement (SBA) with the International Monetary Fund (IMF).
Governor Jameel Ahmad, speaking at a press conference in Karachi, revealed that the Monetary Policy Committee (MPC) had assessed current economic developments and opted to maintain the status quo, keeping the policy rate at 22 percent. Ahmad noted improvements in Pakistan’s external account, evidenced by the rise in foreign exchange reserves from slightly over $4 billion in July 2023, when the standby agreement was signed, to the current $8.3 billion, despite repaying $6.2 billion in principal foreign debt.
The governor highlighted the reduction of the current account deficit from 4.7 percent to 0.7 percent and its standing at $800 million in the first six months of the current fiscal year. He acknowledged the challenge of several debt repayments in the current year. In terms of inflation, Ahmad mentioned a peak of 38 percent in May 2023, with a current declining trend, projecting a faster decrease from March onwards. The MPC revised the average inflation assessment for the fiscal year to 23-25 percent due to elevated gas and electricity prices.
Economic Outlook and Monetary Policy in Pakistan: Business Confidence Rises Amid Challenges
While business confidence has improved, as seen in industrial capacity utilization and large-scale manufacturing, Ahmad expressed confidence in achieving a GDP growth of 2-3 percent. Moreover, a medium-term target to be accomplished by September 2025 was outlined by him. Mohammed Sohail, CEO of Karachi-based brokerage firm Topline Securities, stated that the announcement aligns with market expectations, emphasizing the continued high inflation as a deterrent to an immediate rate cut.
The key rate had reached an all-time high of 22 percent in June to combat inflation and meet IMF conditions. Despite the successful avoidance of a sovereign debt default through the IMF bailout, certain conditions have complicated efforts to curb inflation and dampened business sentiment. In December, inflation reached 29.7 percent, with the latest foreign exchange reserves standing at $13.34 billion. Experts, in a survey by Topline Securities, indicated that 68 percent expected the policy rate to remain unchanged, despite a recent surprise fall in T-Bill yields, while the remaining 32 percent anticipated a policy rate cut. The next MPC meeting is scheduled for March.