The State Bank of Pakistan (SBP) held its main policy rate at 13.25 per cent on Monday, taking a pause from a series of hikes as data pointed to a stabilising inflation rate.
The bank last lifted rates in July by 100 basis points, its ninth cut since the start of 2018, as it faced rising inflation, a substantial current account deficit and downward pressure on the rupee.
The decision comes at a time of scrutiny for the economy as an International Monetary Fund team arrived in Islamabad on Monday to review progress on reforms agreed as part of a bailout package in July.
A statement issued after a meeting of the Monetary Policy Committee (MPC) today stated that the body’s decision to leave the policy rate unchanged “reflected the MPC’s view that inflation outcomes have
been largely as expected and inflation projections for FY20 have remained unchanged since the last MPC
meeting” on July 16.
“The MPC also viewed that, based on available information, the current stance of monetary policy was appropriate to bring inflation down to the target range of 5 – 7pc over the next twenty-four months.”
The committee noted two key developments since its last meeting that influenced its decision.
“First, the interbank foreign exchange market had adjusted relatively well to the introduction of the market-based exchange rate system. The initial volatility and associated uncertainty in the exchange market had subsided. Reflecting these improved sentiments and continued adjustment in the current account, the rupee had strengthened modestly against the US dollar since the last MPC, unlike its previous trend.
“Second, on the external front, the US Fed, as anticipated, reduced its policy rate by 25 basis points (bps), followed by policy rate cuts by other major central banks around the world. This would help in lowering pressures on emerging markets’ currencies and potentially increase financial inflows.”