The State Bank of Pakistan’s Monetary Policy Committee (MPC) has decided to keep the key policy rate unchanged at 22%. This decision was made considering the declining trend in inflation, even though global oil prices have increased. The MPC expects inflation to continue decreasing in the second half of the year due to better agriculture output and measures against speculative activity in the FX and commodity markets.

Since the previous MPC meeting in July, the Pakistani rupee has depreciated and petrol prices have increased. Inflation in August was 27.4%, and Pakistan’s current account deficit reached its highest level since October 2022. Foreign exchange reserves held by the central bank also declined.

Analysts had predicted a rate hike of up to 300 basis points, citing rising inflationary pressure. However, the MPC decided to keep the policy rate unchanged. The reasons for this decision include expected pressure from the International Monetary Fund (IMF), inflation expectations, weakening domestic currency, deteriorated growth outlook, and increasing domestic debt servicing.

In previous meetings, the MPC had raised the key policy rate to maintain a positive real interest rate and address upside risks to the inflation outlook. The government has committed to considering further action in upcoming MPC meetings to meet IMF agreement requirements. Despite a last-minute deal with the IMF, Pakistan’s economy still faces challenges such as rising inflation and widening current account deficit.

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By hassani

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