The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) has maintained the key interest rate at 15%, it was announced on Monday.

“With recent inflation developments in line with expectations, domestic demand beginning to moderate and the external position showing some improvement, the MPC felt that it was prudent to take a pause at this stage,” it said.

This was the first MPC announcement after the government on Friday appointed Jameel Ahmad the new governor of the central bank for a period of five years.

Background

Most analysts expected no change in the monetary policy, which came at a time of rising inflation.

The Consumer Price Index (CPI)-based inflation hit 24.9% on a year-on-year (YoY) basis in July 2022, a 14-year high. The weekly review of the sensitive price index (SPI) on Friday also showed a record increase in inflation up to 42.31% on a year-on-year basis in August, data shared by the Pakistan Bureau of Statistics (PBS) showed.

Pakistan’s current account deficit for June stood at $2.28 billion, up 59% compared with the figure in May when it stood at $1.43 billion.

Meanwhile, the government also lifted a ban on imports on the insistence of international organisations, but finance minister Miftah Ismail insisted that enhanced regulatory duties would control the inward flow of non-essential shipments.

The import ban had proved crucial in narrowing the rising trade deficit, which shrank by 18% YoY and 47% MoM during the month of July 22.

In the previous monetary policy meeting held on July 7 2022, the committee increased the benchmark policy rate by 125 basis points (bps) to 15%. In addition, it linked the interest rates of the Export Finance Scheme (EFS) and Long-Term Financing Facility (LTFF) with the policy rate and offered a discount of 500 bps relative to the policy rate to incentivise exports.