ISLAMABAD: The Monetary Policy Committee (MPC) of the State Bank of Pakistan has decided to keep the policy rate unchanged at 21 percent.
The MPC noted that higher inflation out-turned for April and May as anticipated.
The committee also noted a sequential ease in inflation both for consumers and businesses from the recent peaks.
The committee expected domestic demand to remain subdued amid tight monetary stance, domestic uncertainty and continuing stress on external account. In this backdrop, and given the declining m/m trend, the MPC views inflation to have peaked at 38 per cent in May 2023, and barring any unforeseen developments, expects it to start falling from June onwards.
The committee noted multiple important developments since the last meeting. First, the provisional the national accounts estimates show the real GDP growth to have decelerated considerably during the fiscal year 2023.
Second, the current account balance recorded back-to-back surpluses in March and April 2023, which reduced some pressure on foreign exchange reserves. Third, the government unveiled the budget for the fiscal year 2023-24, which envisages a slightly contractionary fiscal stance against the revised estimates for the 23.
Fourth, the global commodity prices and financial conditions have eased recently and are expected to persist in near term.
The MPC also took stock of the cumulative impact of the substantial monetary tightening undertaken so far, which is still unfolding.
On balance, the MPC views the current monetary policy stance, with positive real interest rates on forward looking basis, as appropriate to anchor inflation expectations and to bring down inflation towards the medium term target – barring any unexpected domestic and external shocks. However, the
The MPC emphasized that this outlook is also contingent on effectively addressing the prevailing domestic uncertainty and external vulnerabilities.
