In today's emergent meeting the Monetary Policy Committee (MPC) of The State Bank of Pakistan increased Policy rate by 300bps to 20%. Taking it to its highest ever. Also, today, the exchange rate deteriorated further and Pak-Rupee declined a massive 6.6% to Rs. 285 to a dollar.
And despite meeting the conditions, the IMF deal remains elusive as the IMF management continuously shifts goal posts for Pakistan. The market now shows total lack of confidence in policy measures.
Indicating worsening situation MPC stated that the recent fiscal adjustments and exchange rate depreciation have led to a significant deterioration in the near term inflation outlook and a further upward drift in inflation expectations.
MPC candidly observed that despite recent improvement in CAD, scheduled debt repayments and a decline in financial inflows amid rising global interest rates and domestic uncertainties, continue to exert pressure on FX reserves and the exchange rate. The statement could have added that despite more than 80% devaluation of Pak Rupee in its latest decline, the exports have not increased and have in fact declined.
Today’s decision of taking Policy Rate to 20% has pushed the real interest rate in positive territory and this will help anchor inflation expectations and steer inflation to the medium-term target of 5 – 7 percent by end of Financial Year 2025. MPC stated.
Quite a long haul course of action, that is. So fasten your seat belts and keep hope.
