The central bank’s Monetary Policy Committee (MPC) has chosen to maintain the policy rate at 22 percent, a decision criticised for relying on optimism rather than economic fundamentals.
Despite a 10.6 percent drop in national CPI inflation from July to August 2023, the MPC disregards rising near-term inflation expectations and a re-emerging current account deficit. It cites positive factors such as an improved agricultural outlook and increased revenue collection but places the onus on the government to achieve a primary surplus of 0.4 percent of GDP and implement fiscal discipline.
The MPC’s decision hinges on a slowdown in private sector credit and the fear of further burdening businesses with higher borrowing costs. However, the optimism in its reasoning remains questionable, given the uncertainties in Pakistan’s economic landscape.