Pakistan looks at ‘medium-term’ inflation target of 5-7%: SBP chief

Pakistan’s central bank chief Jameel Ahmad said the medium-term inflation target will be 5% to 7%, stressing that efforts are being made to bring the headline figure to this range in the next two years.

“The State Bank of Pakistan’s (SBP) key goal is price stability, which is our primary responsibility. At present, the medium-term target has been set at 5-7%,” said the SBP governor at an event to mark the inauguration ceremony of the Rs75 banknote on Tuesday.

“We are very confident that in the coming two years, the SBP would be able to lower inflation to the 5-7% range. This is a big challenge. Right now, when we tell people this, they end up laughing. But I assure you that we can achieve this.”

Pakistan reported its inflation figure at 29.4% on Monday, a slowdown on a monthly basis from the record 38% in May. However, the annual CPI average number still stood at a pocket-pinching 29.2%, prompting the key policy rate to follow suit at a record high at 22% as well.

“Our second key strategic goal is enhancing efficiency, effectiveness and stability of the financial sector. Under this goal, the central bank intends to improve its standards and internal operations,” added Ahmad.

“The third key goal is promoting inclusive and sustainable access to financial services.”

‘Connecting payment system with Arab Monetary Fund’s Buna’

Meanwhile, in a bid to facilitate inflow from remittance from Gulf Cooperation Council (GCC) countries, the SBP also intends to connect its payment system with the Arab Monetary Fund’s (AMF) Buna, a cross-border payment system.

“We would soon sign a Memorandum of Understanding (MoU) with the AMF, a 22-member regional Arab organisation, under which our payment system would be connected with theirs which is called Buna.

“As a result of this agreement, the speed and cost of our remittance transaction would see a significant improvement,” he added.

Buna is a cross-border payment system, supported by Arab central banks and fully owned by the Arab Monetary Fund. It enables financial institutions and central banks in the Arab region and beyond, to send and receive payments in Arab currencies as well as key international currencies.

The development comes as Pakistani authorities look to attract dollar inflows to meet the country’s bulging import and external financing requirements.

Remittances are a vital source of funding for Pakistan, and a major chunk of this liquidity comes from GCC countries including Saudi Arabia and UAE.

Addressing the ceremony, the SBP governor shared that the central bank has developed a strategic plan called Vision 2028, currently under the discussion stage.

“The focus of the Vision 2028 is to improve SBP’s credibility, independence and inclusiveness. These will be the three pillars, moreover, we have also redefined our mission,” he said.

He informed that the central bank has identified six strategic areas to focus on, including maintaining inflation within the medium-term target.

The SBP chief admitted that a large chunk of the country’s population does not have a basic account and remains deprived of financial services. “Under this goal, we want to bring them into formal financial services,” he said.

“Our fourth key goal is to transform into a Shariah-compliant banking system.”

The SBP chief said that the implementation of Shariah compliance would not be forced, “but a business proposition for the banks”.

“We would create a conducive environment that would be in the business interest of banks,” he said, adding that there is high demand for Shariah-compliant banking.

“Our fifth goal is to build an innovative and inclusive financial ecosystem. Under this, we will launch a number of projects related to our payment system and digital banking.

The governor shared that the SBP recently completed a major project pertaining to Raast Payment System.

“In the next step we would upgrade to Real-Time Gross Payment System (RTGS),” he added.