SBP maintains policy rate at 7pc, citing need to support economic recoveryArchive
The State Bank of Pakistan held its policy rate unchanged at seven per cent on Friday, citing the need to support financial stability and economic recovery from the Covid-19 pandemic.
The economy has continued to recover and business sentiment has further improved since the last policy announcement in March.
“Since its last meeting in March, the MPC (Monetary Policy Committee) was encouraged by the further upward revision in the FY21 growth forecast to 3.94 per cent,” the bank said in a statement.
The SBP said while inflation had risen since January, a small number of energy and food items accounted for about three-fourths of this rise.
"Demand-side pressures are contained, wage growth is subdued and inflation expectations are reasonably anchored," the central bank said in a tweet. Inflation rose to 11.1pc last month.
It said the higher growth forecast confirmed the strength of the "broad-based economic rebound underway since the start of the fiscal year, on the back of targeted fiscal measures and aggressive monetary stimulus".
"This positive momentum is expected to persist, translating into higher growth next year," it added.
However, the SBP said uncertainty remained due to the third wave of the coronavirus, suggesting the need for the monetary policy to remain supportive.
"The MPC was of the view that the current significantly accommodative stance of monetary policy remains appropriate to ensure the recovery becomes firmly entrenched and self-sustaining. This is especially so given the renewed heightened uncertainty created by the ongoing third wave of Covid in Pakistan and the fiscal consolidation expected this fiscal year," it noted in its policy statement.
2/3Encouraged by revision in FY21 growth to 3.94%, MPC noted this confirms strength of economic rebound on back of targeted fiscal measures &aggressive monetary stimulus. However, uncertainty remains due to 3rd Covid wave, suggesting need for monetary policy to remain supportive.
The committee observed that given the Covid-related uncertainties, "the cost of withdrawing monetary stimulus too soon exceeded that of withdrawing too late".
"Looking ahead, in the absence of unforeseen circumstances, the MPC expects monetary policy to remain accommodative in the near term, and any adjustments in the policy rate to be measured and gradual to achieve mildly positive real interest rates over time," the statement added.
The SBP has kept rates unchanged despite inflationary pressure over the last few months.
It pointed out that headline inflation had risen since the last policy statement, and warned of second-round supply shocks to inflation as economic growth picked up.
“As the economy gathers further momentum, it will be important to ensure that food price pressures are reversed through successful implementation of administrative measures to keep second-round effects in check,” the bank said.