Karachi: Monetary Policy Committee (MPC) has decided to keep policy rate unchanged at 22 percent, State Bank of Pakistan (SBP) said, adding that continuity required to bring inflation down to targeted range of 5-7 percent by September 2025.

MPC at its meeting noted that inflation, in line with earlier expectations, has begun to decline noticeably from H2-FY24. It also observed that despite sharp deceleration in February, level of inflation remains high and its outlook is susceptible to risks amidst elevated inflation expectations.

Second, external current account balance is turning out better than anticipated and has helped maintain FX buffers despite weak financial inflows. Third, while inflation expectations of businesses have shown steady increase since December, those for consumers have also inched up in March.

Lastly, on global front, while broader trend in commodity prices remained benign, oil prices have increased; partly reflecting continued tense situation in Red Sea.

Incoming data supports MPC’s earlier expectation of moderate recovery in economic activity in FY24 with real GDP growth to remain in range of 2-3 percent.

Denser vegetation of wheat crop, as captured by satellite images, also support this assessment. In industrial sector, large-scale manufacturing, despite slight decline of 0.5 percent during July-January is expected to recover in coming months due to improved capacity utilisation and employment conditions and favourable base effect.

Moreover, workers’ remittances have been rising consistently on year-on-year basis since October 2023, supported by incentives and regulatory reforms to channelise inflows via formal channels.

MPC emphasised that continuation of fiscal consolidation is essential for ensuring overall macroeconomic and price stability.

Moreover, currency to deposit ratio continued to decline due to strong growth in bank deposits along with declining trend in currency in circulation. MPC noted that while energy inflation also decelerated on year-on-year basis in February, adjustments in administered energy prices have continued to contribute to inflation directly and indirectly.

Published in The Daily National Courier, March, 19 2024

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