SBP keeps policy rate unchanged at 22pc for sixth consecutive session

The State Bank of Pakistan (SBP) on Monday chose to maintain the status quo by upholding the key policy rate at 22 per cent for the sixth policy meeting in a row.

The decision was the first under the newly elected government. It also comes ahead of the International Monetary Fund (IMF)’s last review due on March 14 -18 for the $1.1 billion disbursement under the current Stand-By Arrangement (SBA).

In a statement, the SBP said the central bank’s Monetary Policy Committee (MPC) had met earlier today and reviewed the current economic developments.

Regarding the decision to maintain the status quo, the committee noted that although inflation had declined noticeably, it still remained “high and its outlook is susceptible to risks amidst elevated inflation expectations”.

On a positive note, the MPC highlighted that latest data continued to depict moderate pick-up in economic activity.

It said that the better than anticipated external current account balance helped maintain foreign exchange buffers despite weak financial inflows.

On the global front, it observed that “while the broader trend in commodity prices remained benign, oil prices have increased, partly reflecting the continued tense situation in the Red Sea”.

“These circumstances warrant a cautious approach and continuity of the current monetary stance to bring inflation down to the target range of 5 –7pc by September 2025,” the statement said.

‘In line with market expectations’

The majority of market participants expected no change in the current status quo, according to a report from Bloomberg Economics.

According the report, “The IMF has advised a tight policy ahead of its March 14-18 review for a $1.1 billion disbursement under its current loan program”.

Furthermore, it added that it expected the central bank to start monetary easing in April “when inflation is likely to have slowed to 20pc”

“If the talks with the IMF are favourable as we currently expect, Pakistan will also have a larger reserve buffer,” it said, adding that the current foreign exchange reserves barely cover two months of imports.

Similarly, a survey of key market participants conducted by Topline Securities showed that 55pc of participants expect the policy rate to remain unchanged at 22pc, while the remaining 45pc anticipate a policy rate cut.

In the survey, 60pc of the participants expect the first cut to occur in April. The note said that the SBP will “remain cautious” and adopt a “watch and see” approach until inflationary pressure goes down.

Previously, the SBP had kept the interest rate unchanged as the Monetary Policy Committee (MPC) had observed that the frequent and sizeable adjustments in administered energy prices have slowed down the pace of decline in inflation anticipated earlier, besides impeding a sustained decrease in inflation expectations.

Developments since the last MPC meeting include a decline in inflationary pressure from 28.3pc in January to 23.1pc in February. However, a hike was noted in the Sensitive Price Index (SPI) of 1.35pc.

Moreover, the rupee against the greenback has remained relatively stable at Rs278.63, while the country’s foreign reserves remained at 13.15 billion as of March 8.