SBP increases policy rate to 17pc to 'anchor inflation'.

State Bank of Pakistan (SBP) Governor Jameel Ahmad announced on Monday that the Monetary Policy Committee (MPC) had decided to increase the interest rate by one per cent to 17pc.

He made the announcement in a press conference following the MPC's meeting. The increase was largely in line with market expectations.

Separately, a press release issued by the central bank stated, 'The committee noted that inflationary pressures are persisting and continue to be broad-based. If these remain unchecked, they could feed into higher inflation expectations over a longer-than-anticipated period. The MPC stressed that it is critical to anchor inflation expectations and achieve the objective of price stability to support sustainable growth in the future.'

The MPC noted three major economic developments since its last meeting in November - inflation continued to remain elevated, with core inflation showing an upward trend over the last 10 months; near-term challenges for the external sector have increased despite the policy-induced contraction in the current account deficit and there has been a continuous drawdown in foreign exchange reserves; and global economic and financial conditions broadly remain uncertain in the near-to-short term, leading to mixed implications for Pakistan's economy.

'On balance, the committee reiterated its November 2022 assessment that the short-term costs of bringing down inflation are lower than the long-term costs of allowing it to become entrenched. The MPC also emphasised on the engagements with the multilateral and bilateral partners to overcome domestic uncertainty and to address the near-term external sector challenges,' the press release added.

C/A deficit

In his press conference, the SBP chief noted the central bank had previously predicted that the current account deficit would clock in at $10 billion this year. 'Our actual performance during the first six months is better than expected. Despite a slowdown in exports and remittances, our current account deficit during July-Dec stood at $3.7bn.

'This means we are within our target. We now predict that we may be able to bring down the current account deficit below $9bn.' Terming it a good development, Ahmad said it would reduce the country's external financing requirements to an extent.

Funding gap

The SBP governor also gave a breakdown of the country's financing requirements. He recalled that in a Dec 8 podcast, he had said financing requirements for FY23 stood at...

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