State Bank of Pakistan (SBP) keeps policy rate unchanged at 13.25% for next two months

State Bank of Pakistan (SBP) keeps policy rate unchanged at 13.25% for next two months

Karachi (WebDesk): State Bank of Pakistan (SBP) Governor Dr Reza Baqer Tuesday announced to keep the policy (interest) rate unchanged at 13.25% for next two months in the light of SBP Monetary Policy Committee analysis that inflation rate will remain almost same during the next couple of months.

The SBP governor made the announcement at a press conference here. He was flanked by deputy governors Dr Murtaza Syed and Jameel Ahmed, Executive Director Finance Muhammad Ali Malik and Chief Spokesman Abid Qamar.

The governor said this decision on the policy rate was taken by the SBP Monetary Policy Committee. The MPC decision reflected its view that the outlook for inflation has remained broadly unchanged. On the one hand, recent inflation out-turns have been on the high side and there remain near term risks to inflation primarily from food price shocks and potential increases in utility prices, he said. On the other hand, he said, several factors are expected to gradually moderate the pressure on inflation, which include the recent appreciation of the exchange rate after the introduction of the market-based exchange rate and ongoing fiscal consolidation.

On balance, SBP’s projection for average inflation remains broadly unchanged at 11 to 12 percent for fiscal year 2019-20. The committee also viewed the current monetary policy stance as appropriate to bring inflation down to the medium-term target range of 5 to 7 percent over the next six to eight quarters. In reaching this decision, the MPC considered key developments in the real, external and fiscal sectors along with their projections, and the resulting outlook for monetary conditions and inflation.

He said the MPC noted three key developments since the last meeting of November 22, 2019. First, the ongoing and substantial reduction in the current account deficit and the orderly conditions in the foreign exchange market after the transition to a market-based exchange rate system continued to strengthen the country’s external accounts. Second, a joint survey of business confidence by SBP and Institute of Business Administration showed an improvement in the business community’s outlook for economic activity for a third successive wave. Third, fiscal developments remained on track and in line with commitments made under the IMF-supported program, buoying the overall economic reform sentiment.

He said the latest production estimates of major crops indicate that all Kharif crops, except cotton, grew in line with expectations. Cotton production has been revised downward due to adverse supply side shocks.

Large scale manufacturing indicates that economic activity is strengthening in export-oriented and import-competing industries, while inward-oriented industries continue to slow down. Specifically, LSM showed gains in textiles, leather products, engineering goods, rubber products, cement and fertilizer, and declines in auto, electronics, food, chemicals, and petroleum products.

Primarily on account of adverse supply side shocks to cotton production as well as the contraction in LSM to date, the SBP’s projection for real gross domestic product (GDP) growth rate for FY20 is likely to be revised downward. Nevertheless, available monthly indicators of activity show that the slowdown in most economic sectors appears to have bottomed-out, and a gradual recovery is expected in the coming months.