Pakistan’s central bank kept its benchmark rate unchanged despite the International Monetary Fund calling for further tightening to reduce price pressures.
(Bloomberg) — Pakistan’s central bank kept its benchmark rate unchanged despite the International Monetary Fund calling for further tightening to reduce price pressures.
The State Bank of Pakistan maintained the target rate at 22%, Governor Jameel Ahmad said in a press conference in Karachi on Monday. The move was seen by 17 of 39 economists in a Bloomberg survey, with 22 predicting a hike ranging from 50-100 basis points.
The nation will maintain “aggressive” policy rate, Ahmad said at the post-policy briefing. Most economic indicators have started improving, he added.
Elevated borrowing costs are key to reining in demand and inflationary risks arising from tax hikes and lifting of import restrictions. In a policy discussion note, the Washington-based lender made a case for further interest rate hikes to tame price gains. At 29.4%, Pakistan’s inflation has been Asia’s fastest.
The MPC’s assessment shows inflation will fall gradually during the first half of fiscal year 2024, before falling below 20% in the second half, the central bank said. The MPC projects average inflation in the range of 20%-22% for the fiscal year ending June 2024, down from 29.2% seen in the last fiscal year.
“The MPC will continue to carefully monitor the impact of unfolding domestic and global developments on the inflation outlook, and, if required, recalibrate the monetary policy stance to achieve price stability,” the monetary authority said.
Pakistan’s central bank has hiked benchmark rates by 600 basis points since the beginning of the year. Earlier this month, Pakistan won final approval for a $3 billion aid program that helped avoid a default and unlocked funding from friendly nations.
Pakistan’s foreign exchange reserves have almost doubled to $8.19 billion since the IMF loan. Investors are turning optimistic on the nation’s assets with dollar bonds poised for a 6% advance in July, its fourth consecutive monthly gain. The nation’s benchmark share index is among the best performers globally in July.
The prospects of multilateral and bilateral inflows have considerably improved after the IMF agreement, the central bank said. “Further, the market-determined exchange rate will continue to serve as first line of defense against external shocks and support reserve build-up.”
Pakistan had been facing its worst economic crisis that led growth to drop almost to zero and currency to drop a fifth of its value in the past year. Keeping up with the reforms will be key for nation that will vote for a new government later year.
(Updates with more details.)
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