Monetary Policy Statement: Unchanged Policy Rate at 7%

The State Bank of Pakistan (SBP) decided to keep the benchmark policy rate unchanged at 7% in its Monetary Policy Committee (MPC) meeting today (Jan 22, 2021). The committee noted that since its last meeting in Nov’20, further improvement has been witnessed in the overall domestic recovery, which has aided consumer and business confidence. Pertinently, the SBP observes some upside risks to the previously projected GDP forecast of 2 plus percent for FY21.

The Governor also hinted at a very gradual and measured monetary tightening stance when the need arises. In the near term inflationary expectations remain moderate given steadying food inflation following addressal of supply side issues, while excess capacity continues to persist. The inflation outlook appears relatively contained and within the expected 7-9% range for FY21 and slightly lower between 5-7% in the medium term. We do highlight that the particularly cautious stance of the SBP Governor signaled at maintenance of a status quo stance in the benchmark rate for the immediate term.

The MPC has shown comfort with the overall economic recovery of the country and current financial conditions do not merit a rate hike at this point in time. We maintain our stance on the monetary policy where we do not expect a rate hike before May’21, when a 25-50 bps hike may be likely. (AHL Research)

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