SBP keeps policy rate at 15%

In line with market expectations, Pakistan’s central bank has left its key policy rate unchanged at 15% for the next seven weeks to support economic growth and contain inflation. “Based on currently available information, GDP (gross domestic product/economic) growth could fall to around 2% in the current fiscal year 2022-23 compared to the previous forecast of 3-4% before the floods,” said the State Bank of Pakistan (SBP) in its latest monetary policy statement (MPS) issued on Monday. “Meanwhile, higher food prices could raise average headline inflation in FY23 somewhat above the preflood projection of 18-20% (for the full year).” The policy rate remains a tool for the central bank to create a balance between inflation readings and economic growth. “The existing monetary policy stance (policy rate at 15%) strikes an appropriate balance between managing inflation and maintaining growth in the wake of the floods,” the central bank said in the policy statement. For the second consecutive MPS in the past three months, “SBP has maintained the rate at 15%.” Earlier, it raised the rate cumulatively by 800 basis points from September 2021 to July 2022 to 15%. With the pressure of higher food and cotton imports, the current account deficit is likely to remain mute as lower textile exports will be largely offset by slower domestic demand and lower global commodity prices. “As a result, any deterioration in the current account deficit is expected to be contained, leaving it in the vicinity of the previously forecast 3% of GDP.”