Karachi:
A statement made by the governor of the State Bank of Pakistan (SBP) said that Pakistan’s central bank decided to maintain its key rate at 22% for the fifth policy meeting in a row. This decision was made due to the increased levels of inflation.
The decision is the final one made by a caretaker administration before the general elections that are scheduled to take place the following week. It comes at a time when Pakistan is implementing reforms that are connected to a Standby Arrangement (SBA) with the International Monetary Fund (IMF) that is worth $3 billion.
When asked about the decision, the bank stated that it was justified owing to “elevated” inflation; however, they also stated that it was anticipated that the rate in January will decrease from the previous month, when it was 29.7%.
It predicted that inflation would decrease at a faster pace beginning in March, and that the average inflation rate for the entire year would be between 23-25%.
It was said by Tahir Abbas, who is the head of research at Arif Habib Limited, that the State Bank of Pakistan (SBP) chose to take a wait-and-see strategy during this policy meeting and abstained from immediately beginning a monetary easing cycle.
“Economic indicators are gradually improving and inflation is expected to decline significantly from March 2024 onwards, where we believe that (the) SBP is expected to start a monetary easing cycle,” the economist stated.
Additionally, the country’s external accounts and foreign exchange reserves have improved, the current account deficit is anticipated to decrease, and despite the fact that inflation is still high, it is predicted to begin decreasing at a faster rate beginning in March, according to the Governor of the State Bank of Pakistan, JameEL Ahmad.
In order to combat ongoing inflationary pressures and to fulfill one of the requirements that the International Monetary Fund (IMF) imposed in order to secure the bailout, Pakistan’s key rate was increased to an all-time high of 22% in the month of June.
However, some of the attached conditions, such as raising its benchmark interest rate, increasing government revenue, and increasing the prices of electricity and natural gas, have complicated efforts to curb inflation and have dampened business sentiment. This is despite the fact that the rescue program has been instrumental in preventing a sovereign debt default.
Despite the fact that real interest rates were negative, the business community had been advocating for a reduction in interest rates in order to provide some relief from the economic difficulties that were being experienced.
