KARACHI: The State Bank of Pakistan (SBP) has decided to maintain the policy rate at 7%, Governor Dr Reza Baqir announced on Thursday, adding that the Monetary Policy Committee (MPC) has forecast the inflation to remain in the 7-9% range.
Addressing a press conference here in Karachi after the MPC's meeting, Dr Reza Baqir said the decision was taken keeping in mind the current situation.
"The MPC's inflation estimates are 7-9%," he said, warning, however, that a temporary rise in the prices of food and beverages, as well as electricity, were likely.
The SBP's top official said the reason behind inflation was not high demand. "Things are getting better than before," he explained. "The economy is improving and Pakistan's monetary policy supports it.
"The improvement is still not the kind that we would like to see for our nation," he said.
Dr Reza Baqir noted that the production capacity was not being fully utilised and that the inflation was expected to rise as electricity prices increase.
"The MPC has also given a direction to the future and the SBP has provided guidance for the future as well this time.
"Our situation is better today. It's not what it was at the time of the IMF [International Monetary Fund] programme" or in June 2019", Baqir underlined.
The SBP governor mentioned that the Pakistani rupee strengthened when the US dollar was linked to the market rate. The exchange rate system was adapted to the market to improve the current account, he added, noting that the change was made in May-June 2019.
"We were asked if the dollar would skyrocket if left open [free as per the market system but] the Pakistani currency strengthened against it. Moreover, making it market-based made our currency stronger than other countries during the COVID-19 pandemic.
"During the coronavirus [pandemic], the Pakistani rupee fell 3.8% as opposed to those of other developing countries. Brazil's currency fell 21%," he explained.
"Further changes in the interest rate will be introduced in stages," Dr Baqir said.
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