The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) kept the key policy rate unchanged at 22% on Monday.

“At its meeting today, the MPC decided to maintain the policy rate at 22 percent,” it said in a press release.

“The Committee noted that headline inflation rose in September 2023 as expected. However, it is projected to decline in October and then maintain a downward trajectory, especially in the second half of the fiscal year.”

The MPC acknowledged that the recent volatility in global oil prices as well as the increase in gas tariffs from November 2023 pose some risks to the FY24 outlook for inflation and the current account, but said that it also noted some offsetting factors.

“These include the targeted fiscal consolidation in Q1; improvement in market availability of key commodities; and the alignment of interbank and open market exchange rates.”

Real policy rate is significantly positive on 12-month forward-looking basis and is appropriate to bring inflation down to the medium-term target of 5 – 7 percent by end-FY25. However, the MPC noted that this outlook is based on continued fiscal consolidation and timely realisation of planned external inflows: MPC statement

The MPC noted the following key developments since its September meeting.

“First, the initial estimates for Kharif crops are encouraging and will have positive effects on other key sectors of the economy.

“Second, the current account deficit narrowed considerably in August and September, which helped to stabilise the SBP’s FX reserves position amidst tepid external financing in these two months.

“Third, fiscal consolidation remained on track, with both fiscal and primary balances improving during Q1-FY24.

“Fourth, while core inflation remains sticky, inflation expectations of both consumers and businesses improved in the latest pulse surveys. However, global oil prices remain quite volatile and the conflict in the Middle East makes its outlook even more uncertain.”

It added that in the light of these developments, the MPC emphasised on continuing with the tight monetary policy stance.