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SBP to announce Monitory Policy on Friday

KARACHI – Monetary Policy Committee of State Bank of Pakistan will meet on Friday, May 28 in Karachi to decide about Monetary Policy for next two months. It would be the first MPC meeting after announcement of a half-yearly schedule of Monetary Policy Committee (MPC) meetings on a rolling basis aimed at making the process of monetary policy formulation more predictable and transparent. The MPC would review key trends and prospects in the real, external and fiscal sectors, and the resulting outlook for monetary conditions and inflation. The Monetary Policy Committee, in its March 19 meeting, decided to maintain the policy rate at 7 per cent noting continued recovery of growth and employment coupled with improvement in business sentiment. On the basis of improved prospects for manufacturing and monetary and fiscal stimulus provided during Covid, the MPC had updated growth projections for FY21 at around 3 per cent while average inflation in FY21 was estimated to fall to the 5-7 per cent target range over the medium-term.

The committee also indicated potential risks due to the emergence of a third, more virulent wave of Covid in Pakistan.

The MPC noted that despite the recent slight uptick in market yields, financial conditions remain appropriately accommodative given continued slack in the economy, on-going fiscal consolidation and well contained risks to financial stability. Following a seasonal contraction due to retirement of working capital loans in January, private sector credit has resumed its expansionary trend across all major lending categories.

Through FY21 so far, private sector credit has surpassed last year’s corresponding levels on the back of a sizable expansion in fixed investment loans and consumer financing, primarily due to the lower interest rate environment as well as the SBP’s subsidised refinancing schemes, especially LTFF and TERF, MPC observed. The committee forecast that headline inflation may continue to remain elevated in coming months due to administered prices and base effects, underlying price pressures from the demand-side or second-round effects should remain contained.

Looking further ahead, this year’s upcoming round of wage negotiations, next year’s budget, and the path of domestic energy prices and international commodity prices may have an important bearing on the inflation trajectory, the policy statement remarked and vowed that the MPC will monitor these developments carefully and react to them appropriately when needed.

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