KARACHI: The State Bank of Pakistan’s Monetary Policy Committee (MPC) on Friday decided to maintain the policy rate at seven percent.
“MPC of SBP maintained policy rate at 7pc,” the central bank said in a statement, adding that the current stance of the monetary policy was appropriate to support economic recovery, maintain financial stability and keep inflation expectations “well-anchored”.
The SBP kept the interest rate unchanged to support businesses during the third wave of the Covid-19 pandemic. The monetary policy is an effective tool with the central bank that is used to curb inflation.
The SBP announces a target rate every two months, which serves as the benchmark for overnight funds in the interbank market. The policy rate is revised up or down or kept unchanged in relation to the inflation reading and economic activities. Low inflation leads to a reduction in the policy rate in a bid to ramp up economic activities and vice versa.
The committee observed that given the Covid-related uncertainties, “the cost of withdrawing monetary stimulus too soon exceeded that of withdrawing too late”.
“Looking ahead, in the absence of unforeseen circumstances, the MPC expects monetary policy to remain accommodative in the near term, and any adjustments in the policy rate to be measured and gradual to achieve mildly positive real interest rates over time,” the statement added.
Citing the latest National Income Accounts data, the SBP said the economy had “rebounded strongly” from last year’s severe Covid shock, led by services and industry.
“The industrial sector is estimated to have grown 3.6pc during FY21, driven by construction and large-scale manufacturing, especially the food, cement, textile and automobile sectors,” it added.
The strong rebound is also reflected in “exceptionally strong growth” recorded in multiple high-frequency indicators across all three quarters of the year, including sales of fast-moving consumer goods and POL products.
1/3 MPC has decided to maintain policy rate at 7%. While inflation has risen since January, a small number of energy and food items account for about 3/4 of this rise. Demand-side pressures are contained, wage growth is subdued and inflation expectations are reasonably anchored.
— SBP (@StateBank_Pak) May 28, 2021
The agriculture sector, meanwhile, is estimated to have grown 2.8pc, with the production of three important crops ― wheat, rice and maize ― rising to record highs and that of sugar cane to its second-highest ever level.
The SBP has kept rates unchanged despite inflationary pressure over the last few months. It pointed out that headline inflation had risen since the last policy statement, and warned of second-round supply shocks to inflation as economic growth picked up.
“As the economy gathers further momentum, it will be important to ensure that food price pressures are reversed through successful implementation of administrative measures to keep second-round effects in check,” the bank said.
