Karachi : March 18, 2024: Turning deaf ear to the calls for rationalisation of policy rate , the State Bank of Pakistan (SBP) moved again to protect the banking mafia’s interest by maintaining the policy rate at 22 % at least for next two months .
In a statement issued here on Monday, SBP said “The Monetary Policy Committee (MPC) decided to keep the policy rate unchanged at 22 percent”.
Higher interest rate is killing busineses and industrial activities as none of the businesses or industries could get finance for business purposes when the policy rate is as higher as 22 %. The banking sector is the only beneficiary of high policy rates . Its giving loans and getting irrational return on loans from the government. The trading community is urging the decision makers to make substantial reduction in the policy rate ,but since the banking mafia is very powerful and its directly attached with SBP , no action is taken so far to accept the trading bodies demand. Windfall profit of the bank in the last a few years is an ample proof that the SBP is protecting interest of the banking mafia at the cost of the national economy.
The SBP said in approaching today’s decision, the committee noted that inflation, in line with earlier
expectations, has begun to decline noticeably from H2-FY24. The committee, however, observed that
despite the sharp deceleration in February, the level of inflation remains high and its outlook is susceptible to
risks amidst elevated inflation expectations. This warrants a cautious approach and requires continuity of the
current monetary stance to bring inflation down to the target range of 5 – 7 percent by September 2025.
The committee reiterated that this assessment is also contingent upon continued targeted fiscal consolidation and timely realization of planned external inflows.
2. The MPC noted a few key developments since its last meeting, which have implications for the
macroeconomic outlook. First, the latest data continues to depict moderate pick-up in economic activity, led
by rebound in agriculture output. Second, the external current account balance is turning out better than
anticipated and has helped maintain FX buffers despite weak financial inflows. Third, while inflation
expectations of businesses have shown a steady increase since December, those for consumers have also
inched up in March. Lastly, on the global front, while the broader trend in commodity prices remained
benign, oil prices have increased; partly reflecting the continued tense situation in the Red Sea. Moreover,
amidst uncertainty regarding the inflation outlook, key central banks in both advanced and emerging
economies have continued to maintain a cautious monetary policy stance in recent meetings.
Real Sector
3. Incoming data supports the MPC’s earlier expectation of moderate recovery in economic activity in
FY24 with real GDP growth to remain in the range of 2 – 3 percent. Agriculture sector remains the key
driver. After a strong performance of Kharif crops (especially cotton and rice), prospects for wheat crop also
look promising due to increase in area under cultivation, better input conditions, and higher output prices.
Denser vegetation of wheat crop, as captured by satellite images, also support this assessment. In the
industrial sector, large-scale manufacturing, despite a slight decline of 0.5 percent during July-January is
expected to recover in the coming months due to improved capacity utilization and employment conditions
and favorable base effect. Furthermore, knock-on impact of commodity producing sectors and other leading
indicators point towards gradual recovery in the services sector.
External Sector
4. The current account recorded a deficit of $269 million in January 2024. This resulted in a cumulative
deficit of $1.1 billion during July-January FY24, which is down by around 71 percent y/y. The MPC noted
that the improvement largely owes to narrowing of the trade deficit, driven by both an increase in exports and
a decline in imports. The exports have risen on the back of higher food exports, whereas import payments
have remained subdued due to better domestic agriculture output, moderate domestic demand and supportive global commodity prices. Moreover, workers’ remittances have been rising consistently on y/y basis since October 2023, supported by incentives and regulatory reforms to channelize inflows via formal
channels. Financial inflows showed a modest decline in January amidst continuing public debt repayments in
the absence of significant official and private sector inflows. The MPC assessed that the current account deficit is likely to remain closer to the lower bound of 0.5 to 1.5 percent of GDP forecast range for FY24,
which will support the FX reserves position.