Pakistan Leaves Monetary Policy Unchanged


At its May 17th meeting, the State Bank of Pakistan left its key discount rate steady at 10.0 percent for the third straight meeting amid higher inflows, single digit inflation and reduced borrowing by the state.

Excerpts from the statement by the State Bank of Pakistan:

Recent gains in confidence in the economy, backed by improvement in key indicators, need to be nurtured to ensure their sustainability. For instance, the average CPI inflation has remained in single digits during FY14 and policy vigilance is required for this trend to continue. Economic activity has improved and further reforms, especially in the energy sector, would help consolidate the momentum. Similarly, improvement in productivity and competitiveness is a must to continue to build foreign exchange reserves in the medium term while meeting external obligations.

The SBP expects average CPI inflation to remain around 8 percent during FY15, barring any exogenous shock. Indicators of current economic activity are looking better as well. Provisional estimates of real GDP show a growth of 4.1 percent for FY14.

These trends show that interest rate is only one factor in affecting economic activity. It is the improvement in sentiments, relatively better availability of energy, and reduction in government borrowing from the banking system that has encouraged the private sector. The continuation of these trends, however, would require a sustained effort to ease impediments to growth through implementation of necessary reforms. In particular, reforms in the energy sector can go a long way in increasing productivity, easing the fiscal burden, and reducing the import bill. 

State Bank of Pakistan | Isabel Felino | isabel.felino@tradingeconomics.com
5/19/2014 12:32:41 PM