SBP announces monetary policy, maintains interest rate at 13.25pc
KARACHI: The State Bank of Pakistan on Monday announced the monetary policy for the next two months and kept the rate of interest unchanged at 13.25 percent.
“The Monetary Policy Committee (MPC) decided to leave the policy rate unchanged at 13.25 percent. The decision reflected the MPC’s view that inflation outcomes have been largely as expected and inflation projections for FY20 have remained unchanged since the last MPC meeting on 16th July 2019,” said a press release issued by State Bank of Pakistan.
The new monetary policy noted two key developments since the last MPC meeting. First, the interbank foreign exchange market has adjusted relatively well to the introduction of the market-based exchange rate system. The initial volatility and associated uncertainty in the exchange market had subsided added press release.
According to SBP, the rupee had strengthened modestly against the US dollar, unlike its previous trend.
The State Bank also forecasted that recent economic activity indicators have shown a gradual slowdown, in line with earlier expectations. “The MPC continued to expect average growth in FY20 of around 3.5 percent.”
The MPC also noted that the SBP-IBA Consumer and Business Confidence Surveys conducted during Aug-Sep 2019 show a modest improvement in the outlook for the economy.
“The outlook for agriculture and the services sectors was largely unchanged from the time of the previous MPC meeting. The agriculture sector growth is expected to improve considerably in FY20 over the last fiscal year while growth in services is expected to moderate gradually,” said a press release.
The State Bank continued to expect that economic activity would gradually turn around as business sentiment improves.
The external sector continued to show significant improvement with a sizeable reduction of around 32 percent (or 1.5 percent of GDP) in the current account deficit during FY19. The trend continued in the first month of FY20 as well.
The current account deficit declined to US$ 579 million in July 2019 compared to US$ 2,130 million in the same period last year. This, together with the disbursement of program related inflows and activation of the Saudi oil facility, helped to build SBP’s foreign exchange reserves, which as of 6th September 2019, stood at US$ 8.46 billion,” said a statement by SBP.
The SBP further said, “Tax revenues (net of refunds) had grown considerably in July and August of FY20 which suggested that the economic slowdown may not be as pronounced as may have been feared. The MPC noted that fiscal prudence and meeting the program targets is essential to sustaining the improvement in macroeconomic stability.”