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November 24, 2020

SBP maintains policy rate at 7 per cent

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November 24, 2020

KARACHI: The State Bank of Pakistan (SBP) announced on Monday to maintain the interest rate at 7 per cent, saying it expected inflation to fall within the previously announced range of 7-9 per cent for fiscal year 2021 (FY21), Geo News reported.

The decision to retain the current policy rate was made in a meeting of the Monetary Policy Committee (MPC), the SBP said in a statement.Since September, “the domestic recovery has gradually gained traction, in line with expectations for growth of slightly above 2 per cent in FY21, and business sentiment has improved further. Nevertheless, there are risks to the outlook”, it observed.

With regard to inflation, the central bank underlined that although food prices were rising, the supply-side pressures were “likely to be temporary” and that average inflation for FY21 would remain in the previously announced range of 7-9 per cent. “Taken together, risks to the outlook for both growth and inflation appear balanced,” it mentioned.

“Headline inflation has remained close to 9 per cent during the last two months, primarily driven by sharp increases in selected food items due to supply-side issues. In contrast, core inflation has been relatively moderate and stable, in line with subdued underlying demand in the economy,” it noted.

It further said the existing monetary policy was appropriate to support the nascent recovery in light of the Covid-19 pandemic, noting that earlier stimuli would “continue to

shore up growth in coming quarters”. In the real sector, the SBP underscored that recovery was led by construction and manufacturing, while “sales of fast moving consumer goods (FMCGs) rebounded, those of POL and automobiles surpassed pre-pandemic levels, and cement’s at an all-time high”. It also noted that large scale manufacturing (LSM) grew 4.8 per cent year-on-year (YoY) against a 5.5 per cent contraction in the same quarter last year.

Major sectors that saw gains were textiles, petroleum products, food and beverages, paper and board, pharmaceuticals, chemicals, cement, fertilizer and rubber products, the statement read, adding growth in other major crops and higher wheat production would set off the expected decline in cotton production.

The services sector, however, continued to bear the brunt of the pandemic due to social distancing measures, it added. The SBP announced that Pakistan’s exports recovered to the pre-pandemic monthly level of around $2 billion in September and October, with the strongest gains seen in textiles, rice, cement, chemicals and pharmaceuticals. On the other hand, imports remained low owing to suppressed domestic demand and lower global oil prices, it said.

The central bank added that foreign exchange reserves rose to their highest level since February 2018 — $12.9 billion—and that the current account deficit for the ongoing fiscal year was now projected to be below 2 per cent of the GDP.

“Despite lower non-tax revenue, the primary balance posted a surplus of 0.6 per cent of GDP in FY21 Q1, similar to the levels achieved during the same period last year,” it said, adding the payments under the Public Sector Development Programme (PSDP) increased 12.8 per cent (YoY) during the first four months of this year.Tax collections by the Federal Board of Revenue (FBR) expanded 4.5 per cent (YoY) in July-October, it added.