The decision was announced at the end of a key meeting of SBP’s Monetary Policy Committee (MPC) on Thursday.

Earlier, several brokerage houses had predicted that the central bank could increase the interest rate by up to 200 basis points, pushing it to 24%.

The prediction was based on inflation in the country and global price trends.

However, the MPC noted that the inflation rate was slowing down after peaking in the past few months.

The decision to keep the interest rate unchanged “takes into account the latest inflation outturn reflecting the continuing declining trend in inflation from its peak of 38 percent in May to 27.4 percent in August 2023,” the MPC said in a statement.

The MPC said that rising oil prices were unlikely to hamper the downward trends of the inflation rate. “Even though global oil prices have risen recently and are being passed on to consumers through adjustment in administered energy prices, inflation is projected to remain on the downward trajectory, especially from the second half of this year.”

The central bank pinned its hopes on improved agricultural output and the government crackdown against the hoarding and smuggling of dollars.

The MPC said that the government crackdown had “helped in narrowing the gap between the interbank and open market exchange rates.”

The MPC said it expected imports to remain in check for the rest of the year, bringing down the trade deficit which was recorded at $809 million in July after posting surplus in the previous four months.

Favourable rice prices were to improve the export outlook, according to the MPC statement.

The SBP panel noted that FBR collection had increased by 27.2 percent in the first two months of current fiscal year (July and August) compared to the same period from the previous year.

Govt not printing more notes

The MPC statement also indicated that the government had reduced the pace at which it was printing currency notes to solve monetary problems.

“Latest data as of September 1 shows that broad money (M2) growth has decelerated to 13.6 percent on [year on year] basis from 14.2 percent observed at end-June 2023, primarily driven by a significant slowdown in credit to the private sector. Similar to M2, growth in reserve money has also decelerated in FY24 so far. This trend mainly reflects the significant reduction in currency in circulation.”

The central bank said that with better fiscal management on the part of the government, the private sector could expect a renewed supply of loans later in the year.

Dollar rate, energy prices obstacle in lowering inflation

The MPC statement also said that the inflation rate could have been much lower had it not been for the global oil prices that continue to rise.

The SBP committee said that uncertainty in the forex market also proved a big obstacle in bringing down inflation.

Referring to the government crackdown against dollar hoarding, the committee said that the measure going to help with inflation.

“In this context, the MPC noted the recent regulatory and law-enforcement measures will help address supply constraints in commodity and illegal activity in [forex] markets. These developments – along with improved agriculture outlook and tight monetary policy stance – will help ensure that inflation remains on the downward trajectory, especially from the second half of this year.”

However, inflation will likely increase in September “mainly due to base effect and the adjustment in energy prices” before it declines in October and maintains a downward trend for the rest of the year, it said.