SBP to keep policy rate unchanged at 22pc: Governor

Jameel says growth rate will be 2 to 3 percent next year

KARACHI  -  Governor of State Bank of Paki­stan (SBP) Jameel Ahmad while announcing the monetary policy Monday said that SBP decided to keep the policy rate unchanged at 22 percent.

Addressing a press briefing about the Monetary Policy here on Monday, along with SBP Dep­uty Governors Dr. Inayat Hus­sain and Sima Kamil, and Direc­tor Policy Rate Fida Hussain, the SBP Governor said that the Mon­etary Policy Committee (MPC) of SBP had decided to keep the pol­icy rate unchanged.

He said that the Commit­tee also reviewed the econom­ic development. He said that the country would witness econom­ic stability. The SBP Governor said that the growth rate would be 2 to 3 percent next year. Jameel Ahmed said that the inflation would remain between 20 to 22 percent in the 2024. He said that inflation would come down in the months to come. 

He also predicted that the reserves would be in a better position in December and much better in January 2024. He said that the Committee noted that the eco­nomic uncertainty has decreased since the last meeting, whereas near-term ex­ternal sector challenges had been large­ly addressed and investor confidence had shown improvement. While some up­side risks to the inflation outlook have emerged, the Committee also took note of the expected lagged impact of the accu­mulated monetary tightening so far, bud­geted fiscal consolidation, and the tepid growth outlook for FY24.

The MPC particularly noted that year-on-year (y/y) inflation is likely to re­main on downward path over the next 12 months, which implies a significant level of positive real interest rate. 

He said that since the MPC meeting held on June 26, several important devel­opments have influenced the short-term macroeconomic outlook. First, Pakistan has secured a nine-month Stand-By Ar­rangement (SBA) with the IMF that has helped address immediate external sec­tor stability concerns by supporting the foreign exchange reserves. 

With disbursement of the first tranche under the SBA and $3 billion in bilateral support, the SBP’s FX reserves increased from $4.5 billion at end June 2023 to $8.2 billion as of July 21, 2023.

Second, on top of the additional tax measures introduced at the time of ap­proval of the budget, the government has notified an increase in electricity tar­iffs which would contribute to inflation in coming months. 

Third, the global commodity prices have somewhat increased but are still lower than their recent peak. Fourth, the IMF in its July 2023 World Economic Outlook has slightly raised its projection of global growth this year while leaving the 2024 growth projection unchanged. 

In light of these developments, the MPC stressed on maintaining an appro­priately tight monetary policy stance with positive real interest rates on for­ward looking basis to keep inflation and its expectation on downward path so as to achieve the medium-term inflation target of 5 – 7 percent by end-FY25. 

The latest high-frequency indicators up to June 2023 continue to show weak economic activity, broadly in line with the provisional estimates of 0.3 percent real GDP growth in FY23; a sharp decline from around 6 percent growth in the previous two years. Looking ahead, bar­ring unforeseen events, the MPC expects economic activity to moderately recover in FY24, supported by a rebound in rice and cotton output. 

Jameel Ahmed said that The Commit­tee further noted that improved business confidence and withdrawal of priority guidance on imports have improved the outlook for manufacturing, construction and allied services. Notwithstanding this improvement, the unfolding impact of accumulated monetary tightening and expected fiscal consolidation would con­tinue to keep growth range bound. Tak­ing these considerations into account, the real GDP growth is projected in the range of 2.0 to 3.0 percent for FY24. 

He said that with the current account balance recording a surplus for the fourth consecutive month in June, the cu­mulative current account deficit in FY23 substantially narrowed to 0.7 percent of GDP from 4.7 percent in FY22. The MPC noted that this improvement primarily stems from policy-induced compression in imports, which more than offset the decline in exports and workers’ remit­tances during the year. Going forward, the current account deficit is expected to remain contained in the range of 0.5 to 1.5 percent of GDP in FY24.

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