SBP holds interest rate at 13.25pc

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Islamabad

The State Bank of Pakistan (SBP) held its main policy rate at 13.25 per cent on Monday, taking a pause from a series of recent hikes that it said had been enough to ensure the country’s high inflation would gradually reduce over the coming years.

The central bank’s Monetary Policy Committee (MPC) said in a statement it had decided that holding rates was warranted given inflation had not dramatically accelerated since its last meeting. Its current monetary policy stance was appropriate to slash inflation to the target range of 5-7pc over the next 24 months, it said.

“The decision reflected the MPC’s view that inflation outcomes have been largely as expected and inflation projections […] have remained unchanged since the last MPC meeting,” the bank said in the statement, but added that inflation was expected to increase to an average of 11pc to 12pc in 2020.

The decision comes at a time of scrutiny for the economy as an International Monetary Fund (IMF) team arrived in Islamabad on Monday to review progress on reforms agreed as part of a bailout package in July. Under the terms of the $6 billion bailout, the government has put in place tough measures to meet a fiscal deficit target set by the IMF.

The bank has lifted rates nine times since the start of 2018, hiking by 100 basis points at its last meeting in July, as policymakers attempted to keep control of rising inflation, a substantial fiscal deficit and a falling rupee.

Though those challenges continued to loom, the currency had firmed and inflation stabilised in August, rising just slightly to 10.5pc from 10.3pc the previous month.

However, analysts pointed out that this was largely accounted for by a series of changes to the way the rate was calculated, such as including prices from rural areas and decreasing the weightings of some items, such as housing and transport. Under the previous measure, the inflation rate would have jumped to 11.6pc. Reuters