• Tuesday, May 28, 2024

Business

Pakistan’s central bank keeps interest rate steady

The bank said although the inflation rate had eased in February, it remained high and subject to risks.  

Share prices displayed on a digital screen during a trading session at the Pakistan stock exchange in Karachi on February 12

By: Eastern Eye

PAKISTAN’S central bank, on Monday (18), held its key interest rate at 22 per cent for a sixth straight policy meeting as inflation risks continued to loom.

 The decision was in line with the expectations of a majority of analysts, although most are also expecting rate cuts from the second quarter of this year. 

The bank said although the inflation rate had eased in February, it remained high and subject to risks.  

“This warrants a cautious approach and requires continuity of the current monetary stance to bring inflation down to the target range of five-seven per cent by September 2025,” the State Bank of Pakistan’s (SBP) monetary policy committee said. 

 Monday’s policy decision is the last ahead of the April expiry of a £2.35 billion standby arrangement with the International Monetary Fund (IMF).  

Pakistan’s key rate was last raised in June to fight persistent inflationary pressures and to meet one of the conditions set by the IMF for securing the critical bailout. 

 The bank noted the improved inflation figures in February, when the country’s consumer price index rose 23.1 per cent year on year, its slowest since June 2022, partly due to the “base effect”. 

 “Going forward, any further adjustments in administered prices or fiscal measures that may push prices up pose risk to the near and medium-term inflation outlook.” 

 “Cognizant of these risks, the committee assessed that it is prudent to continue with the current monetary policy stance at this stage,” the statement added.  

“The decision to hold rates is guided by the inflation outlook, as opposed to the argument of debt burden and economic slowdown impact of a high policy rate,” said Sajid Javed Amin, deputy executive director at Sustainable Development Policy Institute. 

 He said the central bank must continue its “non-adventurous monetary policy stance”, basing rate decisions on the inflation outlook, its primary mandate. 

 In January, the central bank had raised the average inflation forecast for the fiscal year ending in June to 23 per cent – 25 per cent, from a previous projection of 20 per cent – 22 per cent, due to rising gas and electricity prices.

 Inflation hit an all-time high of 38 per cent in May last year, driven partly by new taxation measures imposed to comply with IMF’s demands for a rescue programme The central bank chief said talks with the lender over the third tranche of the ongoing bailout programme were progressing, but didn’t comment on what outcome he expected from the talks. 

 He said the central bank expected a rollover of £1.57 billion in debt payments this week, and another £3.14bn rollover by June. (Reuters) .

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