The State Bank of Pakistan (SBP) has chosen to sustain the key policy rate at 22%, as revealed in a press statement on Thursday. This decision aims to regulate aggregate demand, factoring in the recent decline in inflation rates from a peak of 38% in May to 27.4% in August 2023. Despite a rise in global oil prices, the bank anticipates a steady descent in inflation rates, particularly from the latter part of the year. The Monetary Policy Committee (MPC) emphasized the importance of a prudent fiscal stance to attain a medium-term inflation target of 5-7% by the end of fiscal year 2025. The existing interest rate, however, has deterred traders and entrepreneurs from resorting to high-priced bank loans.
Mixed Reactions from the Industry on the Policy Stance
The unchanged policy rate has invoked varying responses from industry experts. While Topline Securities CEO Mohammed Sohail noted a high risk of sustained inflation beyond the SBP’s estimates, other analysts like Fahad Rauf, Head of Research at Ismail Iqbal Securities, perceived the decision as fair, considering the lack of evidence pointing to an overheated economy. Additionally, Rauf mentioned that rate increments would only amplify the government’s fiscal deficit and pose a credit threat to the banking sector. Meanwhile, Intermarket Securities’ Head of Equities, Raza Jafri, anticipates a potential rebound in the KSE100 index in the near future, though he stressed the need for political stability and clarified plans regarding foreign investments for sustained improvement.
