Optimistic MPC decision

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.



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