Pakistan central bank holds rates at 15%, to closely watch inflation - GulfToday

Pakistan central bank holds rates at 15%, to closely watch inflation


A man selling vegetables waits for customers at his makeshift stall in Karachi. File/Reuters

Pakistan’s central bank on Monday held its main policy rate at 15%, the bank said in a statement, adding it would closely watch inflation data and global commodity prices.

“Looking ahead, the MPC (monetary policy committee) intends to remain data-dependent, paying close attention to month-on-month inflation... as well as global commodity prices and interest rate decisions by major central banks,” the State Bank said in a statement.

The decision, which was largely in line with analysts’ expectations, came after the bank hiked rates by 125 basis points at its previous policy meeting in July as the country experienced surging inflation.

Pakistan is in economic turmoil with fast-depleting foreign reserves, an historic depreciation of the rupee against the US dollar and soaring inflation.

The decision comes ahead of a crucial meeting by the International Monetary Fund (IMF) in Washington next week, at which the bank said it was expected to approve a $1.2 billion tranche of lending.

Pakistan’s annual consumer price inflation reached 24.9% in July, the highest in 14 years, according to its statistics bureau. Still, the bank said there were signs that inflationary demand pressures were easing, which justified holding rates steady.

“With recent inflation developments in line with expectations, domestic demand beginning to moderate and the external position showing some improvement, the MPC felt that it was prudent to take a pause at this stage,” the bank said.

It projected headline inflation would peak in the first quarter of the fiscal year - which began in July - before gradually declining through the rest of the year. The bank also welcomed expected fiscal consolidation to around 3% of gross domestic product. “It envisages a strong fiscal consolidation... which is appropriate to cool the economy and ensure a reduction in inflation and the current account deficit,” it said. To help achieve this result and reduce the country’s import bill, it expected government measures to promote markets closing early, reduce electricity use, and to encourage remote work from home and car pooling.

Fiscal consolidation has been a key demand of the IMF. Pakistan’s last loan disbursement from the fund was in February and the next tranche was to follow a review in March, but the government of ousted prime minister Imran Khan introduced costly fuel price caps which threw fiscal targets and the programme off track. The Pakistan Bureau of Statistics (PBS) data showed recently that inflation rose sharply in the week that ended on August 18, climbing to a record 42.3 per cent year-on-year.

Inflation, measured by the Sensitive Price Indicator (SPI), rose by 3.35 per cent week-on-week, mainly because of higher food prices. The highest week-on-week increase in inflation was recorded at 3.68 per cent for the week that ended on July 28.

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