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ISLAMABAD: The State Bank of Pakistan (SBP) on Tuesday left the benchmark interest rate unchanged at 9.75% for the next six weeks to maintain a balance between inflation reading and economic growth.
The meeting of the Monetary Policy Committee (MPC) was the first after the start of the Ukraine-Russia conflict which is posing a threat to the national economy and affecting the stock market.
The central bank said the decision reflected the MPC’s view that “the outlook for inflation has improved following the cuts in fuel prices and electricity tariffs announced last week as part of the government’s relief package.”
“At the same time, high-frequency indicators suggest that growth continues to moderate to a more sustainable pace. This moderation should help keep at bay demand-side pressures on inflation and contain non-oil imports, notwithstanding the significant uncertainty about the future path of global energy and food prices due to the Russia-Ukraine conflict,” it added.
It noted that while current real interest rates are appropriate to guide inflation to the medium-term range of 5-7 percent, support growth, and maintain external stability, the Russia-Ukraine conflict has introduced a high degree of uncertainty in the outlook for international commodity prices and global financial conditions.
Due to Russia-Ukraine crisis, it noted that it was prepared to meet earlier than the next scheduled MPC meeting in late April, if necessary, to take any timely and calibrated action to safeguard external and price stability.
The central bank had increased the key policy rate by a cumulative 275bps from September to December 2021 to 9.75% to control the rising inflation and narrow the widening current account deficit, while economic activities remain healthy.
It was the third consecutive monetary policy statement (MPS) in which the central bank maintained the policy rate to support recovery in economic activities despite a higher inflation reading and the recent depreciation of the rupee.
