Pakistan's central bank on Monday raised the policy rate by 50 basis points to 12 per cent, the first such increase since April.
The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) said in a statement that it decided on the measure with a majority vote of nine out of ten members.
It cited the intensification of the West Asia conflict and low prospects of its near-term resolution as a source of heightened global energy prices, adding that although the external account and growth outlook remained broadly unchanged, risks had also increased.
“Considering these developments and the evolving risks, the MPC deemed today's decision as necessary to keep inflation expectations anchored, contain second-round effects of the ongoing supply shock and bring inflation within the target range of 5-7pc. This will help preserve macroeconomic stability, which is necessary for sustainable economic growth,” it said.
It said that forex reserves had remained stable at around USD 21 billion and that real gross domestic product (GDP) growth had been revised at 3.7 per cent, almost unchanged from the initial estimate.
It further said that the Federal Board of Revenue had exceeded its revenue collection target during the first quarter of the current fiscal year.
Regarding inflation, which eased to 10.3 per cent in September from 11 per cent in August, the MPC said that the re-escalation in the Middle East conflict and domestic wheat supply frictions were two major factors keeping inflation at elevated levels
It said that their expected continuation over the next few months had “worsened the inflation outlook”.
“In view of these developments and increasing risks to the inflation outlook, the committee assessed today's decision as important to keep the real policy rate adequately positive on a forward-looking basis,” it said.
Regarding the external sector, the statement said that exports were recovering, adding that remittances had remained resilient and were projected to turn out higher than the earlier assessment.
It stated that the committee expected GDP growth to remain within previously projected ranges of 3.5 per cent to 4.5 per cent in FY27.
SBP Governor Jameel Ahmed also addressed a press conference to announce the decision and said there were many “underlying factors” behind the decision, especially the inflation outlook.
Ahmed noted a deterioration in the current account since the last MPC meeting. However, he added: “The good thing is that its impact is still between zero and one per cent of GDP and it will stay between that.”
He also shared that the central bank revised its outlook on remittances, from $44 billion to $45 billion. He said that exports were witnessing an improvement but it was not yet in line with the economy's needs and added that imports would be close to $71 billion.
It is for the first time that the policy rate has been increased since April, when it was gradually pulled back from 22 per cent a year ago.
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