The State Bank of Pakistan decided to keep the key policy rate unchanged at 22% in its meeting on Monday.

SBP Governor Jameel Ahmad announced the Monetary Policy decision at a press conference after the Monetary Policy Committee (MPC) meeting in Karachi.

The MPC in its statement expected domestic demand to remain subdued amid tight monetary stance, domestic uncertainty and continuing stress on external accounts.

“The MPC noted that higher inflation outturns for April and May were broadly as anticipated. The Committee also noted a sequential ease in inflation expectations of both consumers and businesses from their recent peaks,” it stated.

The committee viewed the national inflation to have peaked at 38% in May 2023.

“The Consumer Price Index inflation rose to 38% in May 2023, pushing the average inflation to 29.2% during July-May of the fiscal year 2023, compared to 11.3% in the same period last year,” it said.

Food inflation continued to contribute more than half to the overall inflation in May. “Importantly, core inflation maintained its upward trajectory, albeit at a slower pace, mainly indicating the second-round impact of higher food and energy prices and exchange rate depreciation amid still elevated inflation expectations.”

Within food, prices of few essential non-perishable items rose quite significantly in May, due to domestic supply chain issues.

Read: Here is how the highest interest rate in Pakistan since 1999 will change your life

The MPC expected that reduced demand-side pressures and ease in inflation expectations, along with moderating global commodity prices and high base effect, would help bring inflation down from June 2023 onwards.

In this context, the MPC viewed that maintaining the current policy stance is necessary to bring inflation down to the medium-term target range of 5% to 7% by the end of the fiscal year 2025.

It is pertinent to mention that International Monetary Fund (IMF) in its staff report urged Pakistan to continue its monetary tightening cycle.

Read: How the interest rate hike is going to affect you

“The recent policy rate hike is welcome, but the tightening cycle should continue if needed to reduce inflation and facilitate external rebalancing,” the staff report said.

The central bank has raised its key policy rate by 12.25 percentage points since April 2022 in an attempt to curb hiking inflation in the country.