KARACHI: The Director of the Monetary Policy Department State Bank of Pakistan (SBP), Amin Lodhi has discussed the latest monetary policy decision in the episode of the SBP Podcast series.
The Monetary Policy Committee (MPC) of the SBP maintained the policy rate at 22 percent on December 12, 2023.
The podcast provides a comprehensive analysis of the monetary policy decision, offering insights into inflation trends, the rationale for maintaining the policy rate, and the global economic context.
SBP keeps key policy rate unchanged at 22%
The episode covers various factors considered by the MPC and their significance in shaping the policy decision. Lodhi illustrated economic indicators and assessed that the current policy rate aligns with the SBP’s inflation target of 5-7 percent.
The discussion also touched on the global context, where some developing economies reduced their respective policy rates for economic recovery, contrasting the situation in Pakistan. To support this point, Mr. Lodhi used graphs illustrating inflation trends in emerging and advanced economies.
He emphasized that the cautious monetary policy decision in Pakistan is influenced by the declining inflation trend and economic factors, despite existing risks.
Lodhi stated that inflation in the country has peaked and is expected to trend lower in coming months. He stated that recent hikes in gas tariffs have contributed to inflation but the resultant narrowing of the fiscal balance is expected to drive long-term benefits in limiting inflation.
He explained that the recent adjustments in gas tariffs were anticipated, with the previous Monetary Policy Statements highlighting the potential impact on inflation.
Despite the unexpected magnitude of gas price adjustments, the SBP projects a continued downward trend in inflation, owing to factors like moderate aggregate demand, tight fiscal policy, and a slowdown in monetary aggregates.
The episode concludes with a discussion on the Real Policy Rate on a 12-month forward-looking basis.
Lodhi explained the calculation and highlighted the importance of forward-looking policy decisions, considering the monetary policy transmission lag.
Copyright Business Recorder, 2023
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