SBP keeps policy rate unchanged at 9.75pc

Published January 25, 2022
State Bank of Pakistan Governor Dr Reza Baqir addresses a press conference on Monday. — DawnNewsTV
State Bank of Pakistan Governor Dr Reza Baqir addresses a press conference on Monday. — DawnNewsTV

KARACHI: The State Bank of Pakistan (SBP) has kept its benchmark interest rate unchanged at 9.75 per cent in its latest monetary policy and signalled that borrowing costs would remain steady for now, as recent tax increases were expected to curb demand and reduce the country’s budget deficit.

“There’s no need for further tightening at the moment because of the government’s fiscal policy,” SBP Governor Dr Reza Baqir told a news conference on Monday.

He said economic indicators were within the target, which allowed the central bank to keep the interest rate unchanged at 9.75pc.

In its previous monetary policy announced last month, the SBP increased the policy rate by 100 basis points from 8.75pc and revised targets for inflation, current account deficit and growth rate and changed the perception about the rising import bill.

Cuts growth forecast to 4.5pc from 5pc for FY22

Since September, the central bank has lifted the rate by 275 basis points to tackle a falling rupee, high inflation and a current account deficit. It indicated last month that it expected the monetary policy setting to remain “broadly unchanged” in the near term.

Central banks typically increase rates to fight inflation and lower them when economies are weak, as they were during the Covid-19 pandemic.

In the latest monetary policy, SBP kept the rate unchanged in line with the forward guidance provided in the last monetary policy statement, Mr Baqir said.

“At that time, the MPC had considered the measures taken to lower inflation and keep the ongoing economic recovery sustainable. These measures include a cumulative 275 basis point increase in the policy rate, higher bank cash reserve requirements, regulatory tightening of consumer finance, and curtailment of non-essential imports,” the SBP said in its monetary policy statement on Monday said.

Since the last meeting on Dec 14, several developments suggested that these demand-moderating measures were gaining traction and had improved the outlook for inflation, it said, adding: “Recent economic growth indicators are appropriately moderating to a more sustainable pace.”

The SBP also cut its projection for the gross domestic product (GDP) for the ongoing financial year to about 4.5pc from 5pc previously.

Mr Baqir said that while headline inflation would continue to remain high “in the near term” due to elevated global commodity prices, its momentum was slowing.

The central bank said inflation was expected to decline during the 2023 fiscal year towards its medium-term target faster than previously expected due to the government’s fiscal policy and moderation in economic activity.

“The MPC was of the view that current real interest rates on a forward-looking basis are appropriate to guide inflation to the medium-term range of 5pc to 7pc, support growth, and maintain external stability. If future data outturns require a fine-tuning of monetary policy settings, the MPC expected that any change would be relatively modest,” the bank said.

The SBP governor also said that the current account deficit was stabilising and remained projected at about 4pc of GDP. The current account deficit appears to have stopped growing since November and the non-oil current account balance is expected to achieve a small surplus for the current fiscal year, he added.

Published in Dawn, January 25th, 2022

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

Unyielding onslaught
Updated 13 Jun, 2024

Unyielding onslaught

SEVEN soldiers paid the ultimate price in Lakki Marwat on Sunday when their vehicle was blown up in an IED attack,...
X diplomacy
Updated 12 Jun, 2024

X diplomacy

Both states can pursue adversarial policies, or come to the negotiating table and frankly discuss all outstanding issues, which can be tackled through dialogue.
Strange decisions
12 Jun, 2024

Strange decisions

THE ECP continues to wade deeper and deeper into controversy. Through its most recent decision, it had granted major...
Interest rate cut
Updated 11 Jun, 2024

Interest rate cut

The decision underscores SBP’s confidence that economic stability is gaining traction.
Rampant zealotry
11 Jun, 2024

Rampant zealotry

Decades of myopic policies pursued by the state have further aided the radicalisation of significant portions of the population.
Cricket breakdown
11 Jun, 2024

Cricket breakdown

THERE was a feeling that Pakistan had finally turned the corner in their T20 World Cup campaign. Sadly, it was only ...