State Bank of Pakistan decides to maintain policy rate at 7 percent

By: News Desk      Published: 05:59 PM, 27 Jul, 2021
State Bank of Pakistan decides to maintain policy rate at 7 percent

The State Bank of Pakistan on Tuesday announced the policy rate will be maintained at 7 percent for the next two months, reported 24NewsHD TV channel.

The announcement was made by Governor of State Bank of Pakistan (SBP) Raza Baqir in a virtual press conference. The decision was taken at a meeting of the Monetary Policy Committee (MPC) on Tuesday.

It is pertinent to note that in May, the central bank had also kept the key interest rate at 7 percent for the next two months as it expected monetary policy to remain accommodating in the near term and any adjustments in the policy rate will be measured and gradual to achieve mildly positive real interest rates over time. The policy rate was last changed in June 2020, when MPC decided to cut it by 100 basis points to 7 percent and since then it has remained unchanged.

Raza Baqir while addressing the virtual conference said that the policy rate will remain unchanged at 7 percent as it yielded positive results since the decision was made last year. “Pakistan’s current account deficit is at its lowest and it has actually benefited the industries,” he added.

Raza Baqir also commented that inflation has been reduced from 9 percent to 8.9 percent in June. “The country’s exchange rate reached the same level it was two years ago,” he added. The SBP Governor said that the economy is performing well and with this the inflation will go down slowly.

In a statement issued by the central bank, it stated, “The Monetary Policy Committee (MPC) decided to maintain the policy rate at 7 percent. Since its last meeting in May, the MPC was encouraged by the continued domestic recovery and improved inflation outlook following the recent decline in food prices and core inflation. In addition, consumer and business confidence have risen to multi-year highs and inflation expectations have fallen.”

“As a result of these positive developments, growth is projected to rise from 3.9 percent in FY21 to 4 - 5 percent this year, and average inflation to moderate to 7 - 9 percent this year from its recent higher out-turns. Imports are expected to grow on the back of the domestic recovery and rebound in global commodity prices, albeit more moderately than in FY21,” the statement reads.

“The MPC noted that the market-based flexible exchange rate system, resilience in remittances, an improving outlook for exports, and appropriate macroeconomic policy settings should help contain the current account deficit in a sustainable range of 2 - 3 percent of GDP in FY22. Notwithstanding this moderate current account deficit, the country’s foreign exchange reserves position is expected to continue to improve this year due to adequate availability of external financing,” the statement further read.

“Against this backdrop, the MPC felt that the uncertainty created by the on-going fourth Covid wave in Pakistan and the global spread of new variants warrants a continued emphasis on supporting the recovery through accommodative monetary policy,” the SBP said in a statement issued.