- MPC meets to assess economic prospects in the midst of inflationary risks.
- Said that basic inflation is more persistent at a high level.
- Add pressure on the external account emerged due to the increase in imports.
Karachi: The Pakistan State Bank (SBP) has held its 12% key policy rate on Monday, opting for stability despite the relaxation of inflation, which should temporarily increase in March and May.
The decision comes after the delegation of the International Monetary Fund (IMF) of senior level examined the rescue package of $ 7 billion in Pakistan, discussing new income and tax measures that can influence inflation and monetary policy.
The Central Bank Monetary Policy Committee (MPC) met to develop economic prospects and, after in -depth deliberations, chose to maintain the policy rate at 12%.
The committee noted that inflation in February 2025 has proven to be lower than expectations, mainly due to a drop in food and energy prices.
“Notwithstanding this decline, the Committee assessed the risks posed by the volatility inherent in these prices in the current decline in inflation,” he said in a statement.
The Committee observed that the current account, which had remained in addition in recent months, has changed a deficit of $ 0.4 billion in January 2025. “This, coupled with low financial admissions and repayments of ongoing debt, led to a drop in exchange reserves of the SBP.”
The monetary status quo was motivated by a reduction in manufacturing on a large scale in H1FY25, a deficit in tax revenue in January and February, and global economic uncertainty in the middle of ongoing tariff climbing.
“At the same time, central inflation turns out to be more persistent at a high level and therefore an increase in food and energy prices can lead to an increase in inflation.
“Meanwhile, economic activity continues to gain ground, as evidenced by the latest high frequency economic indicators.”
In addition, the MPC noted that certain pressures on the external account had appeared due to the increase in imports in the midst of low financial entries.
In balance, the MPC has evaluated the current real interest rate as being correctly positive on a prospective basis to support the current macroeconomic stability.
The MPC reiterated the importance of maintaining a cautious position of monetary policy to stabilize inflation in the target beach from 5 to 7%. This, as well as structural reforms, are essential to achieve sustainable economic growth.
The central bank’s relaxation cycle, one of the most aggressive among emerging markets, follows a series of rate drops totaling 1,000 basic points (BPS) over six months, which brought the key rate to 12% in January, down compared to a record summit of 22% in June.
Inflation fell to 2.4% in January – the lowest in more than nine years – and should drop more to 2.2% in February, supporting the case for additional relaxation.
However, the risks remain then that basic inflation is still high, the deficit in the current account becomes again and market yields have increased, which suggests that the SBP could slow the rate of rate reductions, according to analysts.
With stabilizing inflation but persistent external pressures, analysts think that the SBP is approaching the end of its rate reduction cycle and can move to a more data -based approach in the coming months.
Pakistan could unlock a new financing branch if the IMF exam is approved before the budget was revealed in June, because it continues the economic reforms mandated by the IMF program.
Anticipating a moderate increase from March to May, some analysts estimate that the central bank will stop when rates reach 10.5% to 11%, due to a potential increase in inflation.
Inflation “is” at the end “in the first quarter of the year before going gradually, said Ahmad Mobeen, the main economist of S&P Global, which provides an average inflation of 6.1% for 2025.
Despite the “net decrease” of the consumer price index (IPC), he said that inflation of the urban nucleus, indicating prices pressure, has remained high, at 7.8%.
Under an IMF bailuming of $ 7 billion, the Pakistani economy of $ 350 billion increased by 0.92% in the first quarter of the 2024-25 financial year which ended in June, according to data approved by the National Accounts Committee and published in December.