SBP announces an unchanged 7pc policy rate for two months

KARACHI: State Bank of Pakistan (SBP) on Monday decided to keep the key policy rate unchanged at 7 percent for next two months.
The decision was taken after the committee of monetary policy considered economic conditions in the wake of adverse impact of coronavirus. The SBP has brought down the policy rate by 625 basis points since mid-March 2020.
The Monetary Policy Committee (MPC) noted that compared to the time of the last meeting in June 2020, business confidence and the outlook for growth have improved. This reflects the decline in Covid-19 cases in Pakistan and the easing of lockdowns, as well as the timely stimulus provided by the government and SBP.
At the same time, the forecast for inflation has risen slightly, primarily due to recent supply side shocks to food prices. Average inflation is now expected to fall within the previously announced range of 7 – 9 percent during FY21, rather than marginally below.
The MPC noted that financial conditions continue to be accommodative with real interest rates remaining slightly below zero on a forward-looking basis. In addition, the series of targeted measures undertaken by SBP since the Covid-19 outbreak have injected significant liquidity and further lowered funding costs for many businesses and households. Together, these monetary measures have injected an estimated stimulus of Rs1.58 trillion, or about 3.8 percent of GDP, in the cash flow of businesses and households. In addition, the government has undertaken a number of significant measures to support economic activity including the Ehsaas emergency cash program, commodity financing, a risk-sharing facility for SMEs, and acceleration of tax refunds.
In reaching its decision, the MPC considered key trends and prospects in the real, external and fiscal sectors, and the resulting outlook for monetary conditions and inflation.
Overall, the MPC was of the view that the current monetary policy stance is appropriate to support the emerging recovery while safeguarding inflation expectations and financial stability, said the statement. – TLTP