The Monetary Policy Committee (MPC) of the State Bank of Pakistan on Monday maintained the policy rate at 22%, a statement said.

“The MPC reiterated its earlier view that the real policy rate is significantly positive on 12-month forward-looking basis and is appropriate to bring inflation down to the medium-term target of 5 – 7% by end of fiscal year 2025. However, the MPC noted that this outlook is based on continued fiscal consolidation and timely realisation of planned external inflows,” it added.

The Committee noted that headline inflation rose in September 2023 as expected. However, it is projected to decline in October and then maintain a downward trajectory, especially in the second half of the fiscal year.

“While the recent volatility in global oil prices as well as the increase in gas tariffs from November 2023 pose some risks to the fiscal year 2024 outlook for inflation and the current account.

The MPC also noted the targeted fiscal consolidation during the first quarter; improvement in market availability of key commodities; and the alignment of interbank and open market exchange rates.

“Since its [MPC] September meeting, the initial estimates for Kharif crops are encouraging and will have positive effects on other key sectors of the economy. The current account deficit narrowed considerably in August and September, which helped to stabilise the SBP’s FX reserves position amidst tepid external financing in these two months,” it said.

While core inflation remains sticky, inflation expectations of both consumers and businesses improved in the latest pulse surveys, the MPC noted. However, global oil prices remain quite volatile and the conflict in the Middle East makes its outlook even more uncertain, it added.

“In the light of these developments, the MPC emphasised on continuing with the tight monetary policy stance,” it stated.