The State Bank of Pakistan (SBP) has announced that it will keep the key policy rate unchanged at 22%. This decision was made to control aggregate demand and manage inflation. The bank’s Monetary Policy Committee (MPC) made this decision considering the declining trend in inflation, which has decreased from 38% in May to 27.4% in August 2023. Despite the recent rise in global oil prices, inflation is expected to continue decreasing, especially in the second half of the year.
The MPC also mentioned four key developments since its previous meeting in July. These include an improved agricultural outlook, rising global oil prices, a current account deficit in July, and measures to improve the availability of essential food commodities and curb illegal activities in the foreign exchange market.
The committee emphasized the need to monitor risks to the inflation outlook and take appropriate action if necessary. It also stressed the importance of maintaining a prudent fiscal stance to control aggregate demand and achieve the medium-term inflation target of 5%–7% by the end of FY25.
While some experts expressed concerns about inflation remaining higher than expected, others supported the decision and believed it was fair. They pointed out that raising interest rates would have limited benefits and could have negative effects on the economy.
Overall, with this decision, the KSE100 index is expected to recover in the near term, but sustainability will depend on factors such as political stability, the IMF program successor, and planned foreign direct investment.
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