September 29, 2020

SBP Maintains Previous Policy Rate For First Time Since 2018 Amid Stable Inflation Rate

The Monetary Policy Committee (MPC) of the State Bank of Pakistan conducted a meeting on Monday 16th of September 2019, to revise the policy rate. The MPC concluded that the policy rate would remain unchanged and remain 13.25% as the inflation rates had not dramatically changed since its last meeting, two months ago. The officials in the meeting said that the inflation would now gradually reduce to 5%-7% over the course of the next 24 months.

The SBP released a statement on the meeting saying that the decision for not changing the policy rate was mainly due to the inflation rates being almost unchanged and within the projections, since the last MPC meeting.

According to the statement, the committee’s decision was based on two key developments that occurred since the last meeting. The first thing that the MPC noted was that the interbank exchange market gave a good response for the market-based exchange rate policy and the exchange rate gained stability over the period of time, hence reducing uncertainty. The maintained exchange rate and reduction in uncertainty, caused by it, modestly strengthened the Rupee in comparison to the dollar since the last MPC meeting. The second point that the MPC noted to make their decision was that the US policy rate decreased by 0.5% the Fed funds rate decreased from 5.75% to 5.25%, this would benefit currencies of emerging economies around the world, due to the increased borrowings of dollar and would also potentially increase inflows in Pakistan’s economy.

The MPC had to increase the inflation rate almost 19 times since 2018 to cope with the increasing inflation rates, increasing fiscal deficit and a devaluating currency. This was the first time since last year that the SBP did not raise the policy rate, amid the stable inflation rate and decreasing fiscal deficit.

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