Karachi, January 24, 2024 – The State Bank of Pakistan (SBP) is set to convene the Monetary Policy Committee (MPC) meeting on January 29, 2024, to review the benchmark policy rate.
This meeting follows the issuance of the monetary policy committee meetings calendar for the first half of the year, indicating a proactive approach by the central bank in shaping the monetary policy stance.
The MPC will convene to deliberate on key economic indicators and make decisions regarding the policy rate, reflecting the ongoing efforts to navigate the economic landscape. Governor SBP, Jameel Ahmad, is expected to announce the Monetary Policy decision at a media briefing on the same day after the MPC meeting.
This marks the first of four MPC meetings scheduled for Jan-June 2024. Subsequent meetings are set for March 18, April 29, and the final meeting of the first half on June 10, 2024, indicating a strategic and regular assessment of the economic conditions by the SBP.
In the previous meeting held on December 12, 2023, the Committee opted to maintain the policy rate at 22 percent, citing concerns about the potential impact of rising gas prices on the inflation outlook. The policy rate has remained unchanged since June 2023 when the MPC decided to raise it by 100 basis points to 22 percent in response to emerging economic challenges.
While the country’s economy is gradually improving, analysts express skepticism about a change in the policy rate in the upcoming meeting, citing persistently high inflation levels. Muhammad Sohail, CEO of Topline, noted that although inflation is decreasing, the pace is slower than expected. He anticipates that rates may not come down in the January MPC meeting but speculates a possible cut in the policy rate in the subsequent March meeting.
Despite the uncertainty surrounding the policy rate, positive economic indicators are emerging. Pakistan’s current account has seen a significant improvement, recording a surplus of $397 million in December 2023 compared to a deficit of $365 million in December 2022. Additionally, Foreign Direct Investment (FDI) in Pakistan has risen by 35 percent to $863 million during July-December of FY24, compared to $640 million in the same period of the previous fiscal year (FY23).
Furthermore, recent developments, including the rollover of $2 billion deposits by the United Arab Emirates (UAE) and the release of a $705 million loan tranche by the International Monetary Fund (IMF), contribute to a positive outlook for the country’s economic stability.
It is worth noting that the interest rate on short-term government papers has witnessed a significant decrease in recent months, falling by more than 3 percent. The 6-month lending benchmark Karachi Interbank Offered Rate (KIBOR) has also declined from a peak of nearly 25 percent in September 2023 to less than 20.85 percent on Tuesday, reflecting a positive trend in the financial markets.
As the SBP gears up for the upcoming MPC meeting, market participants and stakeholders will be closely watching for any adjustments in the policy rate and the central bank’s guidance on the economic trajectory for the coming months.
