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SBP Unveils Monetary Policy, Interest Rate Maintained At 7%


Aizbah KhanWeb Editor

19th Mar, 2021. 08:03 pm
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The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) has decided to maintain the policy rate at 7% for the next two months.

According to a statement from the central bank, growth and employment have recovered since the last meeting in January and business confidence has improved further.

The statement said that at present the growth rate is around 3% but it is expected to be higher in the financial year 2021 due to better manufacturing prospects and partly due to the monetary and financial stimulus provided during the coronavirus pandemic.

The SBP said recent inflation figures are variable and general inflation in January was the lowest in more than two years but has risen sharply since February, largely due to rising electricity prices and sugar and wheat.

The Monetary Policy Committee said that the recent rise in inflation was mainly due to the supply chain, but that the productivity gap was still negative as estimated and inflation was still largely under control, however, when the recent rise in government prices If the effect of the increase is to dim, then inflation should come down to 5 to 7 per cent in the medium term.

The recent rise in electricity prices will continue to be reflected in the general inflation figures for the coming months, bringing the average inflation to 7-9% in the current financial year.

The statement said that in deciding the policy rate, the policy committee has also taken into account the uncertainty regarding the inflation and growth scenario.

In addition, the committee took into account the key trends and prospects in the real, external and financial sectors, and the resulting monetary conditions and inflation.

It may be recalled that the SBP Monetary Policy Committee in its meeting held on June 25, 2020, had reduced the policy rate by 100 basis points to 7%.

The State Bank of Pakistan had announced three reductions in interest rates in a period from March to April 2020 due to the negative effects of Coronavirus on the national economy.

On March 17, 2020, the interest rate was reduced by 75 basis points to 12.5 per cent, followed by a further one and a half per cent cut in the policy rate a week later.

Then on April 16, 2020, the SBP announced a 2% cut in interest rates due to the negative effects of the coronavirus on the national economy, bringing the interest rate to 9%, a month later on May 15. The interest rate was further reduced to 8%.

The SBP later cut interest rates by one percentage point to 7% on June 25, 2020, to support the economy, which has been hit hard by the coronavirus.

The statement said the decision was taken to reduce the risk of economic slowdown and slowdown in the country’s growth and to improve the growth rate and boost employment.

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