KARACHI, Pakistan: The State Bank of Pakistan (SBP) Saturday decided to maintain the policy rate at 5.75 per cent for next two months.
The decision was taken in a meeting of the SBP’s Monetary Policy Committee in Karachi.
According to the SBP, after bottoming out in October 2015, Consumer Price Index (CPI) inflation had been following a rising trend, with sporadic seasonal diversions.
The anticipated rise was explained by stability in commodity prices against earlier sharp decline, phasing out of second-round impact of oil prices, and some uptick in domestic demand.
The year-on-year CPI inflation had increased from 1.6 per cent in October 2015 to 4.2 per cent in October 2016 and core inflation was inching upwards as well.
Those movements, the SBP said, were also partially mirrored in the IBA-SBP survey of November 2016 that showed improvement in current and expected economic conditions along with a moderate rise in consumer confidence and inflation expectations for the next six months.
This manageable inflationary environment over the near-term bodes well for the current growth momentum, it added.
A healthy uptick in private sector credit for fixed investment would further support future growth. Consequently, improving aggregate supply was expected to better cater to rising domestic demand in FY17. However, international oil price movements might impact inflation, the SBP said.
The current macroeconomic stability and net retirement of government borrowings from scheduled banks, it said, resulted in relatively easy liquidity conditions in the money market.
Some support also came from increase in bank deposits as the growth in currency in circulation receded back to its past levels after rising exceptionally high in FY16.
Volatility in the interbank market continued to remain low and the overnight money market repo rate stayed close to the policy rate in the post September 2016 monetary policy period.
The global growth outlook for 2016 was mixed. While growth prospects for the US economy remained positive, uncertainties existed for international financial markets and global trade amid anticipated interest rate hike by the US-Fed.
Nonetheless, Pakistan’s continuous buildup of external buffers over the last three years had improved its resilience against external uncertainties.
This was reflected in the current level of foreign exchange reserves which cover more than four months of projected import payments, the SBP said.
In addition, the recent improvement in Pakistan’s sovereign rating along with official financial inflows was projected to sustain its foreign exchange reserves.
However, unpredictability of non-trade flows would influence the current account in particular and the external sector in general during the rest of FY17, the SBP noted.
