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Karachi, The State Bank of Pakistan (SBP) has decided to maintain its policy rate at 22%, as revealed in its recent monetary policy statement. This decision comes amid a backdrop of declining inflation and ongoing economic stabilization measures.
According to AKD Securities Limited, the SBP Governor, in an analyst briefing following the monetary policy announcement, outlined several key points impacting the decision. Inflation has been trending downwards, aided by a tighter monetary and fiscal stance and declining global prices, though geopolitical developments continue to present risks to commodity prices, including crude oil. Core inflation has also decreased, averaging 15.7% in March 2024, with contributions from both goods and services sectors showing a decline.
Economic growth projections for FY24 are set to align with the SBP’s target of 2-3%, with expectations of improvement in FY25. This forecast is driven by recoveries in the agricultural sector, with initial target estimates for major crops such as rice, maize, wheat, and sugar reported as satisfactory.
Further financial stability is indicated by a reduction in SBP’s forward swap liabilities from approximately USD 6.0 billion in January 2023 to just under USD 3.5 billion as of February 2024. This reflects an improvement in the quality of the central bank’s reserves and external buffers. Revenue collection has also remained robust, achieving a primary surplus of 1.8% of GDP in the first seven months of FY24, against a full-year target of 0.4%.
The briefing also touched on the stability of SBP’s foreign exchange reserves despite significant debt repayments, supported by prudent market-based operations. Reserves are expected to increase by an additional USD 1.0 billion by the end of April. The repayment of debts such as Eurobonds and commercial loans has improved the country’s debt maturity profile, with new longer-term borrowings from multilateral and bilateral partners replacing shorter-term debts.
Dividend and profit repatriations by the SBP amounted to USD 800 million during the first nine months of FY24. The central bank also holds gold reserves amounting to 2.0 million troy ounces, valued at approximately USD 4.3 billion.
Looking forward, the SBP Governor anticipates a significant profit of PKR 2.0 trillion for FY24, which is expected to be transferred to the government by year-end. The central bank remains committed to achieving a medium-term inflation target of 5-7% by September 2025, with upcoming fiscal policies and discussions with the IMF playing crucial roles in future monetary decisions.
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