Despite expectations from some quarters, the central bank on Monday decided to keep the policy rate at 15 percent as it sought to strike the right balance between managing inflation and sustaining growth in the face of the floods that have hit it. Forced to revise the growth rate of DP. up to 2%.
This decision was taken during the meeting of Monetary Policy Committee (MPC) of State Bank of Pakistan on Monday. The committee met as per its regular schedule, where it reviewed the impact of monetary policy decisions since the last time rates were hiked to 15 percent.
The committee was of the view that the new rate has led to a reduction in economic activity and also a reduction in inflation and current account deficit since the last meeting.
It added that since their last meeting, the country has witnessed devastating floods that have drastically changed the country’s macroeconomic outlook.
And while reviews are underway to determine their true impact, current rates help strike a balance between maintaining inflation and growth.
“On the one hand, supply shocks to food prices could make inflation higher and more persistent, and it is important to ensure that this additional stimulus does not spill over into wider prices in the economy,” the MPC said in a statement. . Declare the policy rate.
On the other hand, it said growth prospects have weakened, which should reduce demand pressures and suppress core inflation.
“In light of these offsetting considerations, the MPC considered it prudent to leave monetary policy settings unchanged at this stage.”
The committee noted that its policy tightening measures have begun to bear fruit.
“With growth likely to slow further post-floods, this stringency will need to be carefully calibrated going forward,” it said, adding that for the current fiscal year, GDP will be lower than before the floods. The growth rate can be around 2 percent. Forecast 3%-4%.
It added that inflation has come down after the government cut electricity rates last month. Nevertheless, core inflation continued to rise in both rural and urban areas, with expected food shortages and dependence on expensive imports pushing average inflation in the current fiscal year above the pre-flood estimate of 18%-20%. can
He suggested that other positives were how the current account and trade deficits narrowed significantly in August and September respectively, with the rupee recouping some of its losses after recent falls – in recent weeks Rs. The value has increased to more than Rs.21.
There was also an impact on the inflow of $1.2 billion from the International Monetary Fund (IMF) after completing the seventh and eighth joint reviews under the ongoing bailout programs.
