KARACHI: The State Bank of Pakistan (SBP) said that the reversal in the monetary policy stance that saw an increase in the interest rate could lead to a slowdown in the industrial growth during the current fiscal year.

“The reversal in the monetary policy stance from September onwards, which has resulted in a 175 bps [basis points] increase in the policy rate (until November), and other policy measures — such as revisions in prudential regulations for auto and consumer financing, and a one percentage point increase in the cash reserve requirement for commercial banks — are projected to lead to a slight slowdown in industrial growth compared to earlier expectations,” the SBP said its quarterly report on the state of Pakistan’s economy issued on Thursday.

The slight slowdown in industrial activity is expected to be more than offset by the encouraging agricultural performance, based on output estimates of major kharif crops so far, along with the assumption that the higher target for wheat set by the government, from an already record-high output last season, will be met, the central bank said.

However, the major export-oriented industries, especially textiles and rice, would be largely shielded from the impact by their continued access to the SBP’s concessionary refinance schemes despite the rise in the policy rate, mark-up rates on these refinance schemes are still unchanged at low levels, it added.

The analysis and economic outlook of the report are based on data for the July-September 2021 period, and were finalised in November 2021, using data available as of then.

The government was targeting to reduce the fiscal deficit to 6.3 per cent in FY22 from 7.1 per cent in FY21, by increasing revenues via expansion in the tax net and the ongoing growth momentum, which would contribute to tax collection, the report said.

Published in Dawn, March 18th, 2022