Monetary policy

DEFYING market expectations of a 100-300 bps hike in the interest rates, the State Bank has again left its key policy rate unchanged at 22pc. In support of its decision, the bank cites a declining trend in inflation from its peak of 38pc in May to 27.4pc last month, despite the recent surge in global oil prices that are being passed on to consumers. Therefore, it maintains that the “real interest rates continue to remain in positive territory on a forward-looking basis”. The bank is also hopeful that “expected ease in supply constraints owing to improved agriculture output” and the pick-up in high-frequency indicators like the sale of petroleum products, cement and fertilisers, as well as recent administrative actions against speculative activity in the forex and commodity markets will support the outlook. The SBP dispels concerns over the recent resurgence of the current account deficit of over $800m in July, after posting a surplus for the previous four months, saying it is largely in line with the earlier full-year projection that took into account import growth.