SBP keeps interest rate unchanged at 22%

ISLAMABAD: The State Bank of Pakistan (SBP) has decided to keep the policy interest rate unchanged at 22 per cent for the next two months, citing high inflation and uncertain economic outlook.

The SBP announced its monetary policy decision on Monday, after a meeting of its Monetary Policy Committee (MPC).

The SBP said that the decision was based on a careful assessment of the current and expected macroeconomic conditions on the economy.

The SBP also said that the economic recovery was gaining momentum, but it was still fragile and uneven across sectors.

The SBP has raised the policy interest rate by a cumulative 1125 basis points since March 2022, when it was at 9.75 per cent.

The SBP said that this tightening was necessary to curb inflationary pressures and restore macroeconomic stability, as well as to address the external financing needs of the country.

The SBP said that it had received $6 billion from the International Monetary Fund (IMF) under its Extended Fund Facility (EFF) program, which helped improve the foreign exchange reserves and market confidence.

The SBP’s decision to maintain the status quo was not in line with the expectations of most analysts and market participants, who had predicted a change in the policy rate.

Some analysts had argued that further tightening would be counterproductive and hurt the economic recovery, while others had suggested that a slight cut would be beneficial for growth and investment.

However, the SBP opted for a cautious approach and kept the policy rate unchanged at 22 per cent.

According to SBP Governor Jameel Ahmed, the MPC expects a decrease in inflation in the coming months.

He further said that inflation was expected to remain between 20 per cent to 22 per cent in the next two months, while economic growth was expected to remain around 2 per cent to 3 per cent in the next one year.

He told the media that restrictions on imports have been lifted, and the foreign exchange reserves have increased by $4.2 billion in July.

Currently, our foreign exchange reserves stand at $8.2 billion,” he said.

Highlighting a positive outlook for Pakistan’s economy, Jamil Ahmed expressed confidence that the country’s foreign exchange reserves will experience improvement by December.