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SBP maintains monetary policy rate at 13.25pc

SAMAA | - Posted: Nov 22, 2019 | Last Updated: 3 months ago
SAMAA |
Posted: Nov 22, 2019 | Last Updated: 3 months ago
SBP maintains monetary policy rate at 13.25pc

The State Bank of Pakistan decided on Friday to leave the policy rate unchanged at 13.25%, according to a press statement it issued.

The decision reflected its Monetary Policy Committee’s view that recent developments have had offsetting implications for the inflation outlook.

“On the one hand, recent inflation outturns have been on the higher side,” the central bank said in a statement. “On the other, the causes behind these outturns have primarily been increases in food prices which are expected to be temporary.”

It said the market sentiment has also begun to gradually improve on the back of sustained improvements in the current account and continued fiscal prudence.

The SBP’s projection for average inflation for Fiscal Year 2019-20 remained broadly unchanged at 11-12%, the MPC noted at its meeting Friday. It was of the view that the decision to maintain the current monetary policy was appropriate.

The committee considered developments in the real, external and fiscal sectors, and the resulting outlook for monetary conditions and inflation.

According to the MPC, there have been three key developments:

First, the current account balance recorded a surplus in October 2019 after a gap of four years, a clear indication of receding pressures on the country’s external accounts.

The second development was that the government’s primary balance is estimated to record a surplus in the first quarter of FY20, a first since the second quarter of FY16. This, together with the end of deficit monetization, has qualitatively improved the inflation outlook.

The third development was that most recent business confidence surveys showed that businesses expect inflation to fall in the near term, suggesting that inflation expectations remain anchored despite the recent increases in food prices.

The MPC was of the view that inflationary pressures were expected to recede in the second half of the fiscal year.

It said the current stance of monetary policy and real interest rates on a forward-looking basis were appropriate to bring inflation down to the target range of 5-7% over the next twenty-four months.

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