The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) on Tuesday decided to maintain the policy rate at 22%, the central bank said in a statement.

“The decision does take into account the impact of the recent hike in gas prices on inflation in November, which was relatively higher than the MPC’s earlier expectation,” the SBP added.

It is pertinent to mention that the MPC has kept the interest rates unchanged for the fourth consecutive review.

The MPC viewed that this may have implications for the inflation outlook, albeit in the presence of some offsetting developments, particularly the recent decrease in international oil prices and improved availability of agricultural produce, it said.

Further, the MPC assessed that the real interest rate continues to be positive on a 12-month forward-looking basis and inflation is expected to remain on a downward path.

“Higher-than-expected increase in gas prices contributed 3.2 percentage points to the 29.2% inflation in November 2023 year-on-year. Further, core inflation remained sticky at 21.5% during the month, only slightly lower from its peak of 22.7% in May 2023,” the MPC noted.

However, inflation expectations of both consumers and businesses, though improving in recent months, remain at an elevated level, it said.

The MPC expected that headline inflation will decline significantly in the second half of the fiscal year 2024 due to contained aggregate demand, easing supply constraints, moderation in international commodity prices and favourable base effect.

The MPC noted several key developments since its October meeting including the successful completion of a staff-level agreement of the first review under the SBA programme that would unlock financial inflows and improve the SBP’s foreign exchange reserves.

Additionally, the quarterly GDP growth outcome for the first quarter of FY24 remained in line with the MPC’s expectation of a moderate economic recovery.

“Recent consumer and business confidence surveys show improvement in sentiments. Finally, core inflation is still at an elevated level and is coming down only gradually,” the MPC stated.