SBP Holds Steady on Policy Rate Amid Economic Challenges

Karachi: The State Bank of Pakistan (SBP) has opted to maintain the policy rate at 12.0% as announced in its latest monetary policy statement. Although inflation has shown signs of easing, core inflation remains high, and pressures on the external account have emerged due to increased imports and weak financial inflows.

According to AKD Securities Limited, the SBP Governor highlighted these challenges during an analyst briefing. The central bank noted that while economic activity is gaining traction, the current account deficit and declining foreign exchange reserves remain areas of concern. Additionally, global uncertainties, particularly tariff escalations, are influencing the SBP’s monetary policy decisions.

The SBP remains optimistic about GDP growth, expecting it to recover in the second half of fiscal year 2025, maintaining its projection of 2.5-3.5% growth. Despite a recent deficit, the forecast for the current account balance remains stable, aided by strong remittance growth.

The government faces external obligations of $26.1 billion for the fiscal year, with most debt repayments already completed. The central bank anticipates improvements in foreign exchange reserves, expecting them to exceed $13 billion by June 2025, following better inflows after an International Monetary Fund review and commercial borrowing.

The SBP has met all IMF targets for December 2024 and is on track to meet those for June 2025. While inflation is anticipated to decrease, it is predicted to stabilize within a target range of 5-7%, although risks remain due to potential volatility in food prices and other economic factors.

The briefing also mentioned that there are no immediate plans to alter consumer finance regulations, and the level of non-performing loans for SMEs is stable. The recent increase in open market operations is attributed to seasonal cash circulation and SBP’s borrowing from commercial banks, expected to improve with increased external inflows.