Pakistan’s central bank keeps key rate stable and expects inflation to gradually decrease

KARACHI, Pakistan, July 31 (Reuters) – Pakistan’s central bank kept its benchmark rate unchanged at 22% on Monday after a scheduled meeting of its monetary policy committee, with inflation expected to ease gradually over the coming months, said the bank’s governor.

Governor Jameel Ahmad told a news conference that the inflation outlook for the next fiscal year was between 20% and 22%, in line with government projections, and that Pakistan’s deal with the International Monetary Fund (IMF) would not necessarily required a new rate increase.

“The IMF did not say anywhere that we have to raise rates,” Ahmad said. “They said that the political stance should be aggressive and we will go ahead with an aggressive political stance.”

The monetary policy committee meeting was the first since the IMF approved a new $3 billion bailout earlier this month for the ailing economy that had been on the brink of a global debt default.

“The State Bank of Pakistan is confident that the events of the past few weeks will help stabilize the economy and, despite higher energy prices, inflation will come down,” said Mohammed Sohail, head of investment house Topline. Securities, based in Karachi.

Ahmad said Pakistan was “on track” to meet the medium-term inflation target of 5% to 7% and that the bank would ensure it met the IMF’s requirement to keep the market close and interbank rates of the coin.

The IMF said after the bailout that the bank must continue with its monetary tightening cycle to control inflation.

The State Bank of Pakistan (SBP) raised its key policy rate by 12.25 percentage points from April 2022 to curb runaway inflation.

The increase in the increase in the consumer price index slowed in June from a record high of 38% year-on-year in May, but remained elevated at 29.4%. The CPI index decreased 0.3% in June from May.

The government projects average inflation of 21% for the current fiscal year that began July 1. The IMF, however, forecasts inflation of 25.9% for the same period.

central bank of pakistan raised the key rate down 100 basis points to 22% at an off-cycle meeting in June, just a few weeks later have maintained rates in a scheduled meeting.

The bank said on Monday that economic uncertainty had eased since the last meeting, while near-term external sector challenges had been largely addressed and investor confidence had improved. It projected real GDP growth of between 2% and 3% for this fiscal year.

Pakistan’s government said rates had been increased at the request of the IMF in the run-up to the approval of the new bailout deal.

Reporting by Gibran Peshimam written by Swati Bhat and Charlotte Greenfield; edited by Bernadette Baum, Mark Heinrich, Sharon Singleton, and Alex Richardson

Our standards: The Thomson Reuters Trust Principles.