On Monday, the Monetary Policy Committee acted as per expectations and kept the key policy rate at 11.0 per cent. This is now the fourth time in a row where the MPC has decided against further monetary easing, after delivering a 1.0 per cent cut in May. In its statement issued after the decision, the MPC noted that headline inflation rose significantly to 5.6 per cent in September, while core inflation remained unchanged at 7.3 per cent, and that the impact of this year’s floods on the economy is not as bad as was thought at the time of its previous meeting. “The crop losses are likely to be contained, whereas supply disruptions turned out to be minimal. Economic activity "gained further momentum, as depicted by robust growth in high frequency economic indicators”. As such, the MPC statement claims that, while the overall macroeconomic outlook has improved from the previous assessment, uncertainties around this outlook due to “volatile global commodity prices; challenging export prospects amidst the evolving tariff dynamics; and potential domestic food supply frictions” make it best to hold rates and maintain the current price stability. While all of this might have been expected, it might not exactly go down well with many businesses and most ordinary Pakistanis.
According to some reports in the aftermath of the MPC decision, industry leaders are citing the high borrowing costs and onerous tax regime as bigger problems for competitiveness than global or local market pressures. Similar concerns were raised after the last MPC meeting back in September as well. As for ordinary people, they were never able to truly reap the benefits of earlier monetary easing due to higher bills and utilities, stagnant incomes and a tough job market. Now, it seems that things are only getting harder. The impacts of this year’s monsoon season are still unfolding, but for now it looks like they have added to the price pressures facing most people, particularly in the form of higher food inflation. The ongoing security issues at the border with Afghanistan have clearly not helped. And the monsoon season was also followed by a pretty brutal tax season, which saw salaried workers pay more than retailers, wholesalers and exporters combined. While businesses might be clamouring for a rate cut, most people just want anything that will make their lives just a bit easier.
Stability without reward for the majority is unsustainable. While the SBP expects inflation to temporarily exceed the upper bound of its target range for a few months in the second half of the ongoing fiscal year, before reverting back to within the target range in FY27, this is no reassurance to most. Winning the battle against inflation is not enough. Growth, job creation, exports and investment have to pick up. The economic ball has to go beyond being stable and actually start rolling. The much-touted reforms to make this happen have to now be implemented with urgency. Because when most people these days check their accounts and their expenditures, they do not feel any stability. They get an overwhelming sense of precariousness. One missed pay cheque, one salary cut or one spell of unemployment are all that stands between most workers and a financial abyss.