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SBP keeps key policy rate unchanged at 22%

  • Central bank governor conveys MPC has revised projected inflation figure for FY24 from 20-22% to 23-25%
Published January 29, 2024
SBP holds key press conference to announce monetary policy

The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) has maintained status quo and kept the key policy rate at 22%, it was announced on Monday.

“The MPC has decided that the current policy rate will continue,” said SBP Governor Jameel Ahmad as he began the press conference.

“The committee noted that the external account (position) has become better.”

Ahmad said despite payments of $6.2 billion, foreign exchange reserves have improved.

“Our current account deficit has also narrowed.”

Inflation projection for fiscal year 2023-24 has been revised upwards from 20-22% to 23-25% keeping in view the latest round of energy tariff hikes: SBP Governor Jameel Ahmad

Ahmad said the current account deficit projection for fiscal year 2023-24 is between 0.5% to 1.5% of GDP.

“Risks remain to the current account despite the improvement.”

The SBP chief added that inflation has continued to stay elevated, and will stay this way for the next one or two months.

“March onwards is when you will see a decline in inflation.”

Ahmad said inflation projection for fiscal year 2023-24 has been revised upwards from 20-22% to 23-25% keeping in view the latest round of energy tariff hikes.

Talking about the SBP targets, the central bank governor said the earlier middle-term target of inflation at 5-7% was expected to be achieved by June 2025.

“However, that target has now been revised, and would now be achieved by September 2025 – a difference of one quarter,” he said.

Ahmad said business confidence has improved. “We are confident to achieve an economic growth of 2-3% in the current fiscal year.”


Market experts Business Recorder reached out to earlier said they had expected status quo in the key policy rate as inflation rate remains elevated.

BR RESEARCH Monetary Policy: To cut or not to cut?

Muhammad Sohail, CEO at brokerage house Topline Securities, had said while inflation was on on its way down, the pace was slower than expectations.

“Therefore, we don’t think rates will come down in the January meeting,” he added.

However, he was expecting a cut in the policy rate in the next meeting to be held in March this year.

On the other hand, Shahid Ali Habib, CEO at Arif Habib Limited (AHL), another brokerage house, said the MPC should “start monetary easing today”, citing projected inflation figures for the next 12-months.

“Monetary policy committee should consider the projected inflation numbers for the next 12 months while deciding the policy rate today,” said Habib, while sharing the projected CPI and policy rate trend, in a post on social media platform X on Monday.

“Although December CPI inflation recorded at 29.66%, however, the rate is sharply coming down to 19.84% for March and 17.47% for May YoY.

“This clearly indicates that the policy rate should come down by 4% from 22% to 18% by June this year and then 3% more to reach 15% by December,” he said.

In its previous meeting on December 12, the MPC of the SBP had also kept the key policy rate unchanged at 22%, which was in line with market expectations.

Back then, the MPC reiterated “that the real interest rate continues to be positive on a 12-month forward looking basis and inflation is expected to remain on a downward path.”

The Committee back then assessed that the current monetary policy stance is appropriate to achieve the inflation target of 5-7 percent by end-FY25. “The Committee reiterated that this assessment is also contingent upon continued targeted fiscal consolidation and timely realization of planned external inflows.”

The MPC continued to expect headline inflation will decline significantly in the second half of FY24 due to contained aggregate demand, easing supply constraints, moderation in international commodity prices and favorable base effect.

It is pertinent to mention that as part of the IMF agreement, the government has committed to the Washington-based lender that it stands ready to consider further action in upcoming MPC meetings until inflation expectations are on a clear downward path.

Last week, the SBP issued a calendar of MPC meetings for the first half of this year. Overall, four MPC meetings will be held during Jan-June to review the monetary policy stance.

Since the last MPC in December, several key developments on the economic front took place.

The rupee appreciated a marginal 1.5%, while petrol prices decreased around 3% as well.

Internationally, oil prices remain volatile amid an escalation of tensions in the Middle East.

The Consumer Price Index (CPI)-based inflation clocked in at 29.7% on a year-on-year basis in December, marginally higher than the reading in November when it stood at 29.29%, according to the Pakistan Bureau of Statistics (PBS).

In addition, Pakistan posted a current account surplus of $397 million in December 2023, against a deficit of $15 million in November 2023.

Foreign exchange reserves held by the SBP increased by $243 million on a weekly basis, clocking in at $8.27 billion as of January 19, data released on Thursday showed.

Total liquid foreign reserves held by the country stood at $13.34 billion. Net foreign reserves held by commercial banks stood at $5.07 billion.

The SBP attributed the increase in the reserves to the inflow from the International Monetary Fund (IMF).

The IMF released its second tranche of $705.6 million from under the nine-month $3-billion Stand-By Arrangement (SBA).

It may be mentioned here that during the last few months, the interest rate on short-term government papers has declined by more than 3%.

Meanwhile, the 6-month lending benchmark Karachi Interbank Offered Rate (KIBOR) has down from a peak of nearly 25% in September 2023 to less than 20.85% last week.


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