SBP holds key rate at 22% for fourth straight meeting

Core inflation is still at an elevated level and is coming down only gradually, says policy statement


In line with market expectations, Pakistan’s central bank on Tuesday left its key policy rate unchanged at a record high of 22% ahead of the International Monetary Fund (IMF) board’s potential approval for the release of the next loan tranche of $700 million to the country in January 2024.

This was the fourth consecutive monetary policy review in which the bank has made no change in the rate in the past six months, maintaining the tight monetary policy since July partly in wait for deceleration in the inflation reading.

In its latest monetary policy statement, the State Bank of Pakistan (SBP) decided to maintain the policy rate at 22%. “The decision does take into account the impact of the recent hike in gas prices on inflation in November, which was relatively higher than the MPC’s (monetary policy committee) earlier expectation. The committee viewed that this may have implications for the inflation outlook, albeit in the presence of some offsetting developments, particularly the recent decrease in international oil prices and improved availability of agriculture produce.”

Read more: SBP maintains tight monetary policy

Furthermore, it said that the committee assessed that the real interest rate continues to be positive on a 12-month forward-looking basis and inflation is expected to remain on a downward path.


The MPC continues to expect that headline inflation will decline significantly in the second half (Jan-Jun) of FY24 due to contained aggregate demand, easing supply constraints, moderation in international commodity prices and favourable base effect.

The MPC noted several key developments since its October meeting. “First, the successful completion of the staff level agreement of the first review under the IMF SBA programme would unlock financial inflows and improve the SBP’s foreign exchange reserves,” it said.

Read: SBP keeps key policy rate unchanged at 22pc

“Second, the quarterly GDP growth outcome for Q1-FY24 remained in line with the MPC’s expectation of a moderate economic recovery. Third, recent consumer and business confidence surveys show improvement in sentiments. Finally, core inflation is still at an elevated level and is coming down only gradually.”

Taking stock of these developments, the committee assessed that the current monetary policy stance is appropriate to achieve the inflation target of 5-7% by the end of FY25. The committee reiterated that this assessment is also contingent upon continued targeted fiscal consolidation and timely realisation of planned external inflows.

The MPC viewed that the recovery in real GDP during FY24 is expected to remain moderate. According to the first estimates, real GDP grew by 2.1% year on year in the first quarter of FY24, compared to 1% in the same quarter last year.

As per earlier expectations, recovery in the agriculture sector was the major driver of this growth. The manufacturing sector also recorded a moderate recovery, with growth in large-scale manufacturing becoming positive after contracting in the preceding four quarters.

The statement further said that the growth in the services sector remained subdued, unlike the commodity-producing sector.

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