Faisal Kamal Pasha

The State Bank of Pakistan (SBP) has decided to keep the interest rate unchanged at 15 percent for the next seven weeks receiving a positive response from financial experts.

Talking to INP-WealthPK, former advisor of the Ministry of Finance Dr Khaqan Najeeb said, “With the domestic demand beginning to moderate as seen in the high frequency indicators on July 22 and the external position showing mild improvement and resumption of International Monetary Fund (IMF) programme, it is prudent for the SBP Monetary Policy Committee (MPC) to have kept the policy rate at 15%.”

From September last year, there has been an increase of 8 percent in interest rate and a cumulative hike of 800 basis points in the country. The overall rate of inflation remained 25 percent, while the consumer price index (CPI) hit a record high of 42 percent.

Commenting on the situation, Dr Khaqan Najeeb said, “The next two months will allow us to assess the impact of 800 basis points tightening since September 2021 and also the effect of a hopeful fiscal consolidation for year 2023. Further inflation also depends on good supply side management of food items. It is also prudent to keep the rate steady as global growth and commodity prices have slowed,” Dr Khaqan Najeeb added.

Sales of cars, petroleum products, electricity, cement, and fertilizers dropped over the past few months, while it was feared that an increase in the policy rate would further aggravate the situation. A further increase in the rate of inflation is anticipated, while the policy rate is a tool available with the State Bank to control inflation.

Dr Viqar Ahmed, Joint Executive Director of the Sustainable Development Policy Institute (SDPI), said the government has fixed the policy rate at the maximum to counter inflation where another contributing factor is the import-based economy. Inflation, however, can decrease if the oil and gas prices remain under a certain limit for the next three to four months, he added.

Dr Ahmed said the country’s market couldn’t afford fundamental changes, as the IMF programme is just a few days further and the government needs to reflect stability in Pakistan’s economy. Secondly, he said, the government has fixed the maximum policy rate to reduce imports. Dr Ahmed said he foresaw no change in the policy rate for the next three to four months.

Credit: Independent News Pakistan-WealthPak