SBP keeps interest rate unchanged at 7 percent

Dunya News

SBP keeps interest rate unchanged at 7 percent

KARACHI (Dunya News) – The State Bank of Pakistan (SBP) announced its bi-monthly monetary policy on Tuesday and decided to maintain its policy rate at 7 percent, according to a statement issued by the bank.

At its meeting on 27th July 2021, the Monetary Policy Committee (MPC) decided to maintain the policy rate at 7 percent. Since its last meeting in May, the MPC was encouraged by the continued domestic recovery and improved inflation outlook following the recent decline in food prices and core inflation. In addition, consumer and business confidence have risen to multi-year highs and inflation expectations have fallen.

As a result of these positive developments, growth is projected to rise from 3.9 percent in FY21 to 4 - 5 percent this year, and average inflation to moderate to 7 - 9 percent this year from its recent higher out-turns. Imports are expected to grow on the back of the domestic recovery and rebound in global commodity prices, albeit more moderately than in FY21.

The MPC noted that the market-based flexible exchange rate system, resilience in remittances, an improving outlook for exports, and appropriate macroeconomic policy settings should help contain the current account deficit in a sustainable range of 2 - 3 percent of GDP in FY22.

Notwithstanding this moderate current account deficit, the country’s foreign exchange reserves position is expected to continue to improve this year due to adequate availability of external financing. Against this backdrop, the MPC felt that the uncertainty created by the on-going fourth Covid wave in Pakistan and the global spread of new variants warrants a continued emphasis on supporting the recovery through accommodative monetary policy.

Addressing a press conference in Karachi on Tuesday, SBP Governor Reza Baqir said that the decision to maintain the policy rate aimed to promote the industry culture. He said the country economy has improved and the inflation rate has gradually been decreased.

He said current account deficit is at its lowest level in the last 10 years. He added that the inflation rate in June was 8.9 percent.

He said the economic figures have improved due to the measures taken during Covid-19, while it was decided to continue policy support in the outbreak of Covid-19.