SBP to Announce Monetary Policy Tomorrow, Expected to Maintain Current Interest Rate

The State Bank of Pakistan (SBP) is set to announce its Monetary Policy decision on Monday, April 29, 2024, following a meeting of the Monetary Policy Committee (MPC) in Karachi. The MPC will determine the benchmark interest rate after assessing the current economic situation in the country.

In March 2024, the MPC decided to maintain the policy rate at 22%, despite a decline in inflation. The committee noted that while inflation has begun to slow down, it remains high, necessitating a cautious approach to bring it down to the target range of 5-7% by September 2025. "The level of inflation remains high and its outlook is susceptible to risks amidst elevated inflation expectations," the SBP stated in its March Monetary Policy Statement.

The business community has been urging the central bank to lower the interest rate to support economic growth. However, the SBP has adopted a prudent stance, prioritizing the need to control inflation and stabilize the economy. Pakistan's GDP growth is projected to be around 2% in the fiscal year 2024, according to forecasts by international organizations like the IMF and World Bank.

Some analysts anticipate the SBP will reduce the policy rate by 100-150 basis points in the upcoming meeting, given the declining trend in inflation and the need to stimulate economic activity. The inflation rate reached 20.5% in March and is expected to further decelerate to 17% in April. However, others argue that the central bank may choose to maintain the current rate, considering factors such as the upcoming IMF board approval and talks on a longer-term program.

Why this matters: The SBP's interest rate decision will have significant implications for Pakistan's economy, affecting borrowing costs, investment, and overall economic growth. The outcome of the MPC meeting will be closely watched by businesses, investors, and policymakers alike.

The State Bank of Pakistan has maintained a tight monetary policy for over two years, the second-longest period in recent history. The prolonged duration of high interest rates underscores the challenges faced by the country in managing inflation and economic stability. The SBP will issue its Monetary Policy Statement through a press release on the same day as the MPC meeting, providing insights into the factors that influenced the committee's decision.

Key Takeaways

• SBP to announce monetary policy decision on April 29, 2024.
• Inflation remains high, SBP may cut policy rate by 100-150 bps.
• Business community urges rate cut, but SBP prioritizes inflation control.
• Pakistan's GDP growth projected at 2% in FY2024.
• SBP has maintained tight monetary policy for over 2 years.