The State Bank of Pakistan (SBP) announced its decision to maintain the key policy rate at 22% in the latest monetary policy committee (MPC) meeting. This move comes in the wake of an IMF review and amidst various economic factors influencing the decision.

The SBP released a press statement stating that the MPC recognized that headline inflation had risen in September 2023 as anticipated. However, the central bank projected a decline in inflation for October and expected it to continue on a downward trajectory, especially in the latter half of the fiscal year.

The committee took into account recent fluctuations in global oil prices and the impending increase in gas tariffs starting in November 2023. These factors pose certain risks to the inflation outlook and the current account for fiscal year 2024. Nevertheless, the MPC also acknowledged some offsetting elements in the economic landscape. These included targeted fiscal consolidation in the first quarter, an improvement in the availability of essential commodities in the market, and efforts to align interbank and open market exchange rates.

The MPC highlighted several key developments since its previous meeting in September. First, the initial estimates for Kharif crops showed promise, which is expected to have positive ripple effects on various sectors of the economy. Second, the current account deficit had considerably narrowed in August and September, contributing to the stabilization of the SBP's foreign exchange reserves, especially given the limited external financing during these two months.

Third, fiscal consolidation efforts remained on track, with both fiscal and primary balances improving in the first quarter of fiscal year 2024. Lastly, while core inflation remained stubborn, pulse surveys indicated improved inflation expectations among both consumers and businesses. However, the uncertain and volatile nature of global oil prices, exacerbated by conflicts in the Middle East, added an extra layer of uncertainty.

In light of these developments, the MPC emphasized the importance of continuing with a tight monetary policy stance. They reiterated their belief that the real policy rate remains significantly positive when looked at from a 12-month forward-looking perspective. This approach is deemed appropriate to steer inflation towards the medium-term target of 5-7% by the conclusion of fiscal year 2025. The MPC did caution that this outlook hinges on the sustained fiscal consolidation efforts and the timely realization of planned external inflows.

This decision by the SBP comes at a crucial juncture for Pakistan's economic growth, financial stability, and inflation control, with the SBP carefully monitoring the evolving situation to make data-driven policy adjustments as needed.