ISLAMABAD: The State Bank of Pakistan (SBP) has anticipated a gradual decrease in inflation and an improved economic outlook for the country, according to a senior SBP official cited in a local newspaper report on Sunday. Fida Hussain, Director of SBP’s Monetary Policy Department, elaborated on these expectations in a podcast released on Saturday, shedding light on the rationale behind the recent decision to maintain the policy rate unchanged.
In its meeting on July 31, the Monetary Policy Committee (MPC) of the SBP opted to retain the policy rate at 22%. Hussain outlined the factors that influenced this decision, highlighting two key components: the anticipated downward trajectory of inflation throughout the fiscal year 2024 and the positive momentum in Pakistan’s economy, attributed to enhanced investor confidence driven by recent developments.
Hussain elaborated on the podcast, “The MPC’s decision was influenced by several key factors. First, the anticipated gradual decline in inflation throughout the fiscal year 2024. Second, the positive trajectory of Pakistan’s economy, attributed to improved investor confidence due to recent developments.”
Pakistan’s Economic Outlook
The insightful podcast discussion delved into various aspects impacting the decision-making process, including the recently established Stand-By Arrangement (SBA) with the International Monetary Fund (IMF). This agreement contributed to improved market sentiment and a notable increase in foreign exchange reserves for Pakistan.
Furthermore, Hussain addressed concerns about recent price adjustments in critical sectors like petroleum, electricity, and upcoming gas price hikes. These considerations were woven into the MPC’s decision-making process, accounting for their potential impact on inflation.
Importantly, the podcast touched upon the removal of import restrictions and its potential implications for the exchange rate and inflation. The SBP’s high policy rate of 22% has helped mitigate potential foreign exchange rate pressure stemming from the lifting of import restrictions by subduing domestic demand. Positive real interest rates encourage saving and discourage borrowing, ultimately leading to controlled inflation and reduced consumption.
