Stuck High for Longer; Pakistan's Central Bank Maintains 22% Policy Rate Amid Lingering Economic Woes

The Monetary Policy Committee (MPC) decided to keep the policy rate unchanged, at 22 percent.

The Monetary Policy Statement, noted, that;

The economic recovery has been moderate, and the level of inflation is still high. And, the upcoming budgetary measures may have implications for the near-term inflation outlook.

Meaning it could worsen, as IMF conditions will only curtail demand and increase inflation further.

The interest payments have increased due to high debt levels and the government’s reliance on expensive domestic borrowing. As a result, the overall deficit increased to 2.6 percent of GDP during July–January FY24 from 2.3 percent in the same period last year.

Uncontrolled government expenditure stands as the single greatest challenge to our economic and public financial health. Without a demonstrable commitment to fiscal discipline, the economic outlook will continue to deteriorate.

The committee also noted that this inflation outlook is susceptible to risks emanating from the recent global oil price volatility.

The central bank is saying that we hoped that some god-send relief will allow us some space, and that has not happened.

Potential inflationary impact of resolution of circular debt in the energy sector; and tax rate-driven fiscal consolidation going forward.

Again, the key structural issues include the energy sector black hole and stagnant revenues. 

Recall, that the policy rate was hiked to 22% in June 2023. And it has remained stuck there ever since.

The Monetary Policy Committee's (MPC) statement stands out for its clear presentation of factual information. The decision to hold rates, demonstrably based on robust data and sound analysis, is commendable. This approach will undoubtedly enhance the credibility of the MPC's process and decision-making.

See Monetary Policy Statement 29 Apr 2024

See our previous note on that and persistent economic issues.