Karachi, At its recent meeting, the Monetary Policy Committee (MPC) of the State Bank of Pakistan opted to maintain the policy rate at 22 percent. This decision was influenced by the need to control still-high inflation despite signs of macroeconomic stabilization and moderate economic recovery. The Committee projects bringing inflation down to a target range of 5 – 7 percent by September 2025.

According to State Bank of Pakistan, the MPC’s assessment of the current economic environment reveals that the macroeconomic stabilization measures have led to improvements in inflation and the external position. Key indicators include a moderate recovery pace in the first half of FY24, highlighted by a strong agricultural sector rebound. Despite significant debt repayments, a sizable current account surplus in March 2024 has helped stabilize the foreign exchange reserves. Additionally, while consumer inflation expectations slightly increased, business inflation expectations have decreased.

Real GDP growth is expected to stay between 2 to 3 percent this fiscal year, with agriculture continuing as the primary growth driver, achieving a 6.8 percent increase in the first half due to higher crop yields. The industrial sector saw a slight contraction, whereas service sector growth was below expectations, reflecting subdued demand. External sector improvements were significant, with a major reduction in the current account deficit and robust export performance, particularly in rice, contributing to a more stable economic outlook.

Fiscal consolidation efforts are ongoing, with the primary surplus growing and revenue collection increasing due to economic recovery and taxation measures. However, the government’s reliance on expensive domestic borrowing has raised interest payment burdens, slightly increasing the overall deficit. In the monetary landscape, broad money supply growth reflects favorable trends in foreign assets and government borrowing, although private sector credit growth is decelerating.

Inflation has moderated notably in the latter half of FY24, with both headline and core inflation rates decreasing. The MPC acknowledges that while inflation is trending downwards, it remains susceptible to external shocks and domestic fiscal adjustments. The Committee has thus emphasized the importance of maintaining the current monetary policy stance to continue supporting price stability and sustainable economic growth.