KARACHI: Pakistan should continue its monetary tightening cycle, the International Monetary Fund said in a staff report on Tuesday.
According to media reports earlier, the IMF approved a new bailout arrangement for the South Asian country. The staff report of the IMF said, “The fresh policy rate hike is welcome, but the tightening cycle must continue if needed to decrease inflation and ease external rebalancing,”.
IMF Urges Islamabad to Continue Monetary Policy Tightening Cycle
Reuters reported that the State Bank of Pakistan had increased its key policy rate by 12.25 percentage points since April 2022 to curb rising inflation in the country. However, the next monetary policy meeting is expected to be held on July 31.
The staff report said that in the short term, the forward-looking real policy rate should return to a positive side to re-anchor expectations and achieve the central bank’s inflation objective over the medium term.
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In the Memorandum of Economic and Financial Policies (MEFP) that resulted from its dialogues with the International Monetary Fund, Islamabad said it stands ready to consider further action at the next monetary policy committee meeting and following ones until inflation and inflation expectations are on a clear downward path.
It said that the exact pace of future adjustments also depends on inflation data, exchange-rate developments, the strength of the external position, and the fiscal-monetary policy mix.
However, the government of Pakistan has predicated inflation at 21% for the fiscal year 2024.
