SBP keeps interest rate unchanged for another six weeks

By: News Desk
Published: 07:56 PM, 8 Mar, 2022
SBP keeps interest rate unchanged for another six weeks
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The State Bank of Pakistan has announced that the interest rate, 9.75 percent, will remain unchanged for another six weeks as the outlook for inflation has improved.

"This decision reflected the Monetary Policy Committee’s (MPC) view that the outlook for inflation has improved following the cuts in fuel prices and electricity tariffs announced last week as part of the government’s relief package," the central bank stated after the committee meeting on Tuesday.

It continued: “high-frequency indicators suggest that growth continues to moderate to a more sustainable pace.

"This moderation should help keep at bay demand-side pressures on inflation and contain non-oil imports, notwithstanding the significant uncertainty about the future path of global energy and food prices due to the Russia-Ukraine conflict.”

The MPC meeting was the first after the start of the Ukraine-Russia conflict affecting the economy badly. The interest rate and flexible rupee-dollar parity are the two major tools available with central banks all over the world to control inflation reading and give a direction to the economic trajectory in their respective countries.

The SBP increased the key policy rate from September to December 2021 to control the rising inflation and narrow the widening current account deficit, while economic activities remain healthy.

The bank stated: "Looking ahead, the MPC noted that while current real interest rates on a forward-looking basis are appropriate to guide inflation to the medium-term range of 5-7%, support growth, and maintain external stability, the Russia-Ukraine conflict has introduced a high degree of uncertainty in the outlook for international commodity prices and global financial conditions.

"Continued adverse conditions on these fronts could pose challenges to the outlook for the current account deficit and inflation expectations, which could necessitate changes in the policy rate.

Since the Russia-Ukraine situation remains fluid, the MPC noted that it was prepared to meet earlier than the next scheduled MPC meeting in late April, if necessary, to make any needed timely and calibrated action to safeguard external and price stability.

It was the third consecutive monetary policy statement (MPS) in which the central bank maintained the policy rate to support recovery in economic activities despite a higher inflation reading and the recent depreciation of the rupee.