Karachi, October 11, 2022 (PPI-OT): Pakistan Economy: SBP maintains Policy Rate at 15%

The Monetary Policy Committee (MPC) decided to maintain the policy rate at 15% – in line with analysts’ expectations. The committee based its decision on the prime objective of striking a balance between managing inflation and maintaining growth in the country.

Following the floods in the country, the SBP has lowered its FY23 economic growth forecast to 2%, from the earlier held 3-4% – in line with our expectations of the economy growing at a modest rate of 2.1%.

The SBP indicated for inflation to possibly settle higher than the earlier estimated range of 18-20% in FY23. On the flipside, some respite to the inflation reading would come in the form of lower demand in the economy.

The SBP has maintained its expectations for Current Account Deficit to remain at 3% of GDP in FY23. Demand for Pakistan’s exports is somewhat inelastic, illustrated by Pakistan’s exports remaining stable over the past quarter (US$7.12bn, higher by 1.84%YoY) despite the economic slowdown around the world.

The central bank noted that the economy remains on track to build its FX reserves in light of the external financing and additional commitments in the wake of the floods (expected inflows of US$4bn).

In our view, the Central Bank’s guidance for the economy is in line with the investment community’s expectations, hence have been largely priced into the capital markets.