SBP Maintains interest rate at 22 percent

Muhammad Haris

The State Bank of Pakistan (SBP) on Monday decided to keep interest rate unchanged.

Governor State Bank of Pakistan Jameel Ahmed said that from last monetary policy statement the external position has improved. The current account deficit has been contained and it is expected that deficit will be around 0.5 percent to 1.5 percent of GDP

Governor SBP, Jameel Ahmad will announce the Monetary Policy decision at a press conference on the same day after the MPC meeting.

Most analysts had expected the interest rate to remain unchanged as inflation has been on the higher side.

The governor said the current account deficit has been around 0.7 percent of the GDP in December lowered from 4.6 percent compared to same period last year.

He said that inflation for the fiscal year had been revised to 23-25 percent from earlier estimates of 20-22 percent.The inflation target in September 2025 would be around 5-7 percent from earlier it was estimated that this numbers might be achieved in June 2025.

Inflation in December was 29 percent it will be lowered once announced for January.From March inflation to dip sharply.

“We are expecting that GDP growth to be maintained between 2 to 3 percent for FY24”, he said.

IMF’s recent report on Pakistan indicates a downward revision in inflation projections which might range from 26% to 24%.

While the Fund expects restrictive fiscal policy and weak demand to lead to downward pressure on inflation in 2HFY24, it expects PKR to depreciate
by 12% during FY24, compared to the 2% appreciation so far during FY24 YTD.

The Fund also highlights that the country’s monetary policy needs to stay tight and proactive, and the Monetary Policy Committee (MPC) should respond swiftly and forcefully if signs of inflationary pressures re-emerge.

An analyst from JS said “We expect CPI to clock in at 24%/16% for FY24/CY24, where we incorporate semi-10 % annual gas price increases, regular power tariff adjustments, steady global oil prices, and gradual rupee depreciation. While the market continues to price in the increasing likelihood of an interest rate cut with secondary market yields trimming
~200bp in the last few months.

“We believe the same will likely occur when spot CPI clocks in below the discount rate with the first cut likely around Mar 2024”, the analyst said.