KARACHI, Pakistan: The Monetary Policy Committee of the State Bank of Pakistan (SBP) has decided to keep the policy rate unchanged at 5.75 per cent for next two months.
Talking to the media in Karachi on Saturday, the SBP Governor Ashraf Mahmood Wathra said that the average inflation clocked in at 3.9 per cent during the first half of the current financial year, lower than the earlier projections due to smooth supply of perishable items, stable exchange rate, and government’s absorption of the impact of higher international oil prices.
“The current trends suggest that the actual inflation will be lower than the target rate of 6 per cent in fiscal year 2017 (FY17),” he added.
The governor state bank said that growing China-Pakistan Economic Corridor (CPEC)-related imports, decline in exports, absence of Coalition Support Fund, and slowdown in remittances pushed the current account deficit to $3.6 billion in the first half of FY17, from $1.7 billion in the same period last year.
The higher deficit was financed by an increase in bilateral and multilateral funding along with pick-up in investment flows, he said, that overall surplus in the balance of payments stood at $0.2 billion in the first half of the current year.
Going forward, with the aforementioned risks to the external sector, the need of financial inflows would grow further, the Governor noted.
Ashraf Mahmood Wathra said that a sizeable net retirement of government borrowing to scheduled banks and an increase in bank deposits helped increase private sector credit. Benefiting from the historic low interest rates, private businesses were actively borrowing from the banking sector for upgrading and expanding their business processes.
The private sector, he added, borrowed Rs 375 billion in the first half of FY17 as compared to Rs 282.6 billion availed in the corresponding period of last year. Loans for fixed investments increased by Rs 134.1 billion in the first half of FY17 compared with an expansion of Rs 83.8 billion in the same period of last year while demand for consumer financing, especially for auto loans, also gathered pace during the first half of the year.
The SBP Governor said healthy credit expansion, along with higher production of Kharif crops, visible improvements in energy supply, and upbeat business sentiments signaled recuperating real economic activities. Large-scale manufacturing grew by 3.2 per cent during the first five months of the current fiscal year and further increase was expected on account of growing infrastructure spending and recent policy support for export oriented sectors, he added.
Based on an assessment of the above developments and after detailed deliberations, he said, the Monetary Policy Committee decided to keep the policy rate unchanged at 5.75 per cent.