State Bank of Pakistan (SBP) to pause interest rate hikes to support economic recovery after raising policy rate 275 basis points since September, governor Dr Reza says Baqir.
Speaking to Yvonne Man and Rishaad Salamat on “Bloomberg Markets: Asia”, Dr Baqir discussed monetary policy and the economic outlook.
âWe don’t want to delay in trying to ensure that inflation expectations remain anchored and, as a result, we have raised rates by 275 basis points cumulative since September. We have also indicated in our monetary policy statement as a forward-looking indication that we will now take a break.
“We will take a break to first look at the effects of the tightening we have already done, and then we will consider what the monetary policy parameters should be afterwards.
“The fiscal policy has been very complementary and also removes the stimulus measures, so we believe that a coordinated macroeconomic response will be the first to support the recovery and control inflation as a whole.”
The statement comes after the central bank raised its policy rate for a third consecutive meeting, raising the policy rate to 9.75%.
3rd consecutive increase: the SBP increases its key rate by 100 basis points, bringing it to 9.75%
Baqir said economic growth in Pakistan remains “quite rapid”. âWe expect the economy to grow 5% during the year. This is in addition to the 4% growth achieved the previous year, âBaqir said.
Citing improved auto sales, growth in textile exports and tax collection, Baqir said the economy is developing quite well.
“Global development, including global recoveries and supply chain disruptions, have caused global commodity prices to rise sharply, pushing up our current account deficit as well as inflation. in Pakistan, “said the head of the SBP.
Baqir estimated a 60-70% increase in the country’s DAC due to global commodity prices.
Highlighting the devaluation of the rupee against the US dollar, the SBP chief said the measures taken will reduce pressure on the rupee once demand declines.
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âThe recent weakening of the rupee, which has been around 10% since this calendar year, overestimates the extent of the weakening as we have moved from a fixed exchange rate to a market based exchange rate in June 2019.The rupee is around 162, and it is roughly the same level as last year from January to December.
âSecond, a market-based exchange rate served as a good shock absorber and actually allowed the central bank to build up reserves, and that’s what matters when you look at the outlook for the currency,â Baqir said. , adding that Pakistan’s reserves have grown from $ 7 billion in June 2019 to over $ 19 billion today.
“We expect that as the combined effort of our policies takes effect, the pressure on the rupee will ease as domestic demand moderates.”
Cumulatively, the rupee has depreciated over 11% CYTD and 13% on a FYTD basis against the US dollar.