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SBP Governor woes to improve economic fundamentals, policy rate to remain 22pc

Imran Zakir

KARACHI: A Press conference was held at the Central Bank on Monday to announce the Monetary Policy after the Monetary Policy Committee (MPC) meeting which decided to maintain the policy rate at 22 percent.
Sharing the findings of MPC with media in the Press Conference the SBP Governor said that slowed down the pace of decline in inflation due to unstable energy prices and globally inflation is elevated, 23 % to 25 % inflation expected till March 2024.
On the other hand SBP is looking for sustainable growth, the non-energy inflation continues to moderate, so he Committee viewed that the real interest rate remained significantly positive on a 12-month forward looking basis, as inflation is expected to remain on a downward path.
The MPC noted several key developments and positive economic outlook. First, the FX reserves have improved on the back of a notable surplus in the current account in December and significant financial inflows, including the latest IMF SBA tranche. Primarily led by the agriculture sector.
Real GDP growth projection remains unchanged in the range of 2 to 3 percent for FY24. The recent survey results also showed consistent increase in capacity utilization in the manufacturing sector, while business sentiments, for both industry and services, turned positive for the first time since April 2022.
At the same time, imports declined considerably due to lower international commodity prices, better domestic crop output, and a decline in oil import volumes. These factors more than offset the pick-up in non-oil import volumes. Moreover, workers’ remittances continued to improve for the second consecutive month in December.
The Committee noted that the projection of current account deficit for FY24 remains unchanged in the range of 0.5 to 1.5 percent of GDP, despite the modest economic recovery and elevated level of profit and dividend repatriation.
FBR tax collection grew by 30.3 percent during H1-FY24 amidst gradual recovery in economic activity and continued impact of taxation measures, while non-tax revenues also remained strong.
The improvement in the external position has increased the net foreign assets of the banking system. In contrast, growth in net domestic assets of the banking system decelerated, primarily due to a slowdown in private sector credit (PSC). The Committee also noted the continued declining trend in currency to deposit ratio, which was due to the strong growth in bank deposits and a decline in currency in circulation.
The SBP recently introduced reforms policies given the positive outlook.

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