Washington DC May 10 2024: Monetary policy should remain appropriately tight and vigilant against emerging pressures, with inflation still well above target, states IMF in its Second and Final Review Under the Stand-by Arrangement.
The recent deceleration of inflation is welcome and will reduce the high burden on Pakistani society, and particularly the most vulnerable.
Monetary policy should remain data-driven and attentive of stickiness in core inflation, as well as resolutely address any emerging risk. Guiding inflation back to target is imperative not only to buttress a sustainable recovery but also to build central bank credibility.
Considering the risks to inflation and the criticality of re-anchoring expectations to the SBP’s medium-term inflation objective, staff welcomed the MPC’s decision to keep policy rates on hold.
The Central Bank agreed with IMF that any loosening of the policy stance should be supported by further evidence that inflation remains on a declining trend, pass-through remains contained, and possible exchange rate pressures from FX market normalization are limited.
Successfully reducing inflation is crucial for restoring public trust in a stable and efficient monetary policy framework. This involves prioritizing the medium-term inflation objective, using interest rates as the primary policy instrument instead of the exchange rate, and ensuring that monetary transmission functions through the traditional channels, albeit at a gradual pace.
In the last meeting, the Monetary Policy Committee (MPC) decided to keep the policy rate unchanged at 22 percent to bring inflation down to the target range of 5 – 7 percent by September 2025.
“Based on the two-week data, we anticipate inflation to decrease to 13.0% YoY in May’24” writes FRIM ventures in its social media note.
