No near-term monetary stance change: SBP.

KARACHI -- While leaving its policy rate unchanged at 7 per cent for a third time, the State Bank of Pakistan (SBP) on Friday indicated that it will maintain its accommodative monetary stance in the near-term to support the nascent recovery amid uncertain Covid-19 challenges.

The policy rate was drastically reduced since mid-March 2020 from 13.25pc to single digit within a few months after the emergence of Covid-19 to pump maximum liquidity for supporting slowing economic activities amid the pandemic-related lockdowns.

Unveiling the Monetary Policy Statement (MPS) for next two months, SBP Governor Dr Reza Baqir said since the last Monetary Policy Committee (MPC) meeting in November, domestic recovery has gained some further traction. Most economic activity data and indicators of consumer and business sentiment have shown continued improvement, he observed. 'As a result, there are upside risks to the current growth projection of slightly above 2 per cent in FY21,' he added.

On the inflation front, recent out-turns are also encouraging, suggesting a waning of supply-side price pressures from food and still-benign core inflation.

Central bank keeps policy rate steady at 7pc

'Inflation is still expected to fall within the previously announced range of 7-9pc for FY21 and trend toward the 5-7pc target range over the medium-term,' said the governor.

The SBP said the trajectory of the Covid pandemic is difficult to predict, given still-elevated global cases, the emergence of new strains, and lingering uncertainties about the roll-out of vaccines worldwide.

'Such external shocks could slow the recovery,' said the SBP.

In real sector the economic recovery underway since July has strengthened in recent months. The Large-Scale Manufacturing (LSM) grew by 7.4pc year-on-year in October and 14.5pc in November, said the SBP.

The LSM had contracted 5.3pc during the same period last year.

'The manufacturing recovery is also becoming more broad-based, with 12 out of 15 sub-sectors registering positive growth in November and employment beginning to recover,' said the SBP.

While discussing the external sector, the governor SBP said the outlook for the...