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Monetary policy: SBP maintains status quo, holds interest rate at 15%



  • SBP hints at tightening policy rate in next meeting scheduled to be held on October 10.
  • Central bank had cumulatively increased rate by 800bps from Sept 2021 to Jul 2022.
  • In today’s meeting, MPC said it was “prudent to take a pause at this stage”.

KARACHI: In line with the market expectations, the State Bank of Pakistan (SBP) Monday maintained the status quo in the interest rate at 15% — the highest since November 2008.

The monetary policy committee (MPC) met under the chair of Deputy Governor Syed Murtaza and reviewed the economic indicators. Despite record high inflation the central bank decided to keep the interest rate unchanged for the next six weeks.

The central bank had cumulatively increased the rate by 800 basis points from September 2021 to July 2022 to control inflation and narrow the current account deficit. However, the central bank kept the interest rate unchanged in today’s meeting for the next six weeks.

The central bank today felt that it was “prudent to take a pause at this stage” as it noted that recent inflation developments are in line with expectations, domestic demand is beginning to moderate and the external position is also showing some improvement due to a lower trade deficit and resumption of the International Monetary Fund (IMF) programme.

“This pause allows MPC to assess the impact of 800 bps tightening since September and fiscal consolidation planned for FY23,” the monetary policy statement mentioned, adding that it is also in line with recent actions by other emerging markets central banks, who have been holding rates in recent meetings as global growth and commodity prices have slowed.

The committee also noted that in order to contain external pressures and support the rupee going forward, “it is important to contain the current account deficit by delivering the budgeted fiscal consolidation, lowering energy imports through energy conservation measures, and keeping the IMF programme on track.”

Since the last meeting on July 7, MPC noted three key domestic developments, which include:

  • Headline inflation rose further to 24.9% in July, with core inflation also ticking up.
  • Trade balance fell sharply in July and the rupee has reversed course during August, appreciating by around 10% on improved fundamentals and sentiment.
  • IMF’s board meeting will take place on August 29 and is expected to release a further tranche of $1.2 billion, as well as catalysing financing from multilateral and bilateral lenders.

Moreover, the committee also noted that Pakistan has also successfully secured an additional $4 billion from friendly countries over and above its external financing needs in the fiscal year 2022-23. As a result, foreign exchange reserves will be further augmented through the course of the year, helping to reduce external vulnerability.

‘Outlook subject to uncertainty’

In its forward guidance, the central bank hinted at tightening the policy rate in the next meeting scheduled to be held on October 10. 

“MPC intends to remain data-dependent, paying close attention to month-on-month inflation, inflation expectations, developments on the fiscal and external fronts, as well as global commodity prices and interest rate decisions by major central banks,” it said.

The central bank projected that in the coming months, curbing food inflation through supply-side measures that boost output and resolve supply-chain bottlenecks should be a high priority.

‘Inflation to peak in first quarter’

“Looking ahead, headline inflation is projected to peak in the first quarter before declining gradually through the rest of the fiscal year. Thereafter, it is expected to decline sharply and fall to the 5-7% target range by the end of fiscal year 2023-24, supported by the lagged effects of tight monetary and fiscal policies, the normalisation of global commodity prices, and beneficial base effects,” it said.

The central bank said that this baseline outlook “remains subject to uncertainty”, with risks arising from the path of global commodity prices, the domestic fiscal policy stance, and the exchange rate.

“The MPC will continue to carefully monitor developments affecting medium-term prospects for inflation, financial stability, and growth,” it maintained.

‘Good decision’

Terming the decision taken by the central bank as “good”, Alpha Beta Core CEO Khurram Schehzad lauded the central bank for not raising the interest rate anymore.

“Decline in global commodities should give respite to import bill, however, monetary policy tightening and its transition would continue to be under-effective given massive fiscal deficit and governance issues.,” he said, adding that fiscal prudence is key to country’s economic issue.


An increase in tax was made on restaurant card payments.




After 15 years, the SRB reduced the service tax that 58 hotels and restaurants in Karachi could have charged on debit and credit card purchases to 15%. This action is a part of the Sindh budget, which was designed to make eating out less expensive for customers.

Prior to this, Sindh’s tax on credit and debit card purchases was lowered from 15% to 8%.

Officials from the SRB have further stated that the service was made available for input adjustment of restaurant tax payments. With this step, businesses will be able to efficiently handle their tax responsibilities and the tax process would be made simpler.

Only a few eateries have been given authority to remove the lower tax rate, even though this tax facility has been reversed.

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The KSE-100 Index rises following a sharp decline in the previous session.




The government is considering filing a treason case under Article 6 against PTI founder Imran Khan, former president Arif Alvi, and former deputy speaker Qasim Suri. On Tuesday, the KSE-100 Index was up more than 1.3% during early trading, following a day of roughly a 2 percent loss due to growing political unrest and the potential banning of the party.

However, the benchmark index of the Pakistan Stock Exchange was trading at 79,074.63 by 11:49 a.m., having gained 535.45 points, or 0.68 percent, after reaching an intraday high of 79,578.04.

Market analysts said that political tensions were the primary cause of the KSE-100’s earlier Monday decline of 1578.71 points, or 1.97 percent.

They did point out, though, that a correction was a reasonable reaction to the protracted upswing that allowed the benchmark mark index to reach 81,839.86 on July 18.

As a result of interest rate cuts and the possibility of another IMF program, the Pakistan Stock Exchange has gained 22.97 percent so far this year. The cycle began on June 10 with a 1.5 percent decrease in borrowing costs.

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In interbank trade, the US dollar crushes the Pakistani rupee.




During interbank trade on Tuesday, the US dollar’s value increased by 15 paisas, reaching Rs 278.45.

It is important to remember that Fitch Business Monitor International expressed concern about the possibility that Pakistan’s economic stability may be jeopardized by the ongoing political unrest.

The fragile situation of Pakistan’s economic recovery was emphasized by Fitch in its most recent Pakistan Country Risk Report, which also noted that economic activity has been impeded by urban protests.

(PTI),In spite of multiple successful judicial appeals, the founder of Pakistan Tehreek-e-Insaaf (PTI) is expected to stay behind bars, the article notes, underscoring the fragile political environment.

With no urgent plans for new elections, this scenario suggests that the coalition administration will remain in office for the next 18 months.

Fitch also described an eventuality in which the government could change and be replaced by a technocratic administration. This suggests that the government of Pakistan would carry out the reforms demanded by the IMF, contributing to the 3.2% GDP growth expected in 2024–2025.

The policy rate has stabilized above projections, while the research predicted it may reach 16 percent this fiscal year and 14 percent the following year.

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