22% Interest Rate
In a recent decision, the State Bank of Pakistan’s Monetary Policy Committee (MPC) has chosen to maintain the status quo by keeping the key policy rate unchanged at 22%, as outlined in a press release issued on Tuesday. The decision is rooted in the committee’s goal of managing aggregate demand and promoting economic stability.
The MPC considered the impact of the recent surge in gas prices on November’s inflation, which exceeded the committee’s earlier projections. While acknowledging potential implications for the inflation outlook, the committee highlighted offsetting developments, such as the recent decrease in international oil prices and improved availability of agricultural produce.
1/4 The Monetary Policy Committee (MPC) decided to maintain the policy rate at 22 percent in its meeting today. See https://t.co/hmLGPgsZq3#SBPMonetaryPolicy pic.twitter.com/GLMsRZbEXM
— SBP (@StateBank_Pak) December 12, 2023
Key developments since October were also taken into account, including a staff-level agreement with the International Monetary Fund (IMF) unlocking financial inflows, improved foreign reserves, and the first-quarter GDP growth in line with the MPC’s expectations for a moderate economic recovery.
The MPC emphasized that the current monetary policy stance aligns with achieving the inflation target of 5-7% by the end of fiscal year 2025. This assessment is contingent upon continued targeted fiscal consolidation and the timely realization of planned external inflows.
3/4 This decision also takes into account the elevated level of core inflation which is moderating at a gradual pace.
— SBP (@StateBank_Pak) December 12, 2023
While expecting a moderate real GDP recovery during fiscal year 2024, the MPC noted that inflation expectations, though improving, remain elevated for both consumers and businesses. The committee anticipates a significant decline in headline inflation in the second half of fiscal year 2024, driven by contained aggregate demand, easing supply constraints, moderation in international commodity prices, and favorable base effects.
Despite facing inflationary pressures, the decision to maintain the unchanged interest rate was anticipated by market analysts, aligning with expectations and reflecting the committee’s commitment to a balanced monetary policy approach.
The sustained high policy rate aims to curb inflation and fulfill conditions under the $3 billion IMF loan program approved in July, contributing to overall economic stability. Overall, SBP’s MPC Maintains 22% Interest Rate, Keeps Status Quo to Regulate Aggregate Demand, States Tuesday Press Release.
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