Pakistan Central Bank Maintains Key Rate at 22% – Reuters

Pakistan Holds Interest Rate Steady Amid Inflation Outlook

Pakistan’s central bank opted to keep its key interest rate unchanged at 22% on Monday, aligning with market expectations. The central bank anticipates a decrease in inflation in the coming months following a significant rise last month.

This decision precedes the arrival of an International Monetary Fund (IMF) delegation on Thursday, which will assess progress on the targets outlined in a $3 billion aid program approved in July to support the beleaguered economy.

The State Bank of Pakistan stated that the Monetary Policy Committee (MPC) reiterated the importance of maintaining a tight monetary policy stance. The bank forecasts that inflation will decline in October and continue to drop significantly in the following months due to reduced prices for essential food items and declining fuel costs.

However, the central bank expressed concern about the uncertain outlook for global oil prices, especially due to rising instability in the Middle East following the Israel-Hamas conflict.

The central bank previously projected that inflation would average between 20% to 22% during the current fiscal year, which commenced on July 1, a decrease from the previous year’s average of 29.2%. Inflation surged to 31.4% in September, driven by a substantial increase in fuel prices, although the government has since reduced fuel prices.

Inflation data for October is expected to be released later this week. The IMF has estimated inflation to be at 25.9% for the year and has advocated for mildly positive real interest rates. Central bank head Jameel Ahmad clarified that while real rates should remain positive, this does not imply a recommendation for further rate increases; instead, it suggests a continued tight monetary policy.

Ahmad noted that the central bank has met key targets set by the IMF ahead of the delegation’s visit. The bank stated that a successful and timely evaluation during the upcoming IMF-SBA review would be essential in unlocking additional multilateral and bilateral financing.

Mohammad Sohail, CEO of Karachi-based brokerage Topline Securities, commented that the decision to maintain current rates aligns with recent data trends, adding that future developments will significantly depend on the stability of the Pakistani rupee and global oil prices, in conjunction with the IMF’s loan review.

The central bank has maintained the interest rate since July following a series of hikes totaling 12.25 percentage points since April 2022. The Pakistani rupee, which faced a steep decline in August, has significantly recovered against the dollar due to measures aimed at curbing black market trading, contributing to the easing of inflation.

A successful review by the IMF remains crucial for securing additional external funding for Pakistan, which narrowly skirted defaulting on its debt obligations earlier this year following a last-minute deal that replaced an incomplete previous program.