The State Bank of Pakistan (SBP) has decided to keep the policy rate unchanged at 15 per cent, according to a press release issued on Monday.

Providing the reasons for the Monetary Policy Committee’s (MPC) decision, the statement said:

“With recent inflation developments in line with expectations, domestic demand beginning to moderate and the external position showing some improvement due to a lower trade deficit and resumption of the IMF (International Monetary Fund) programme, the MPC felt that it was prudent to take a pause at this stage.”

It said this pause allowed the MPC to assess the impact of tightening by 800 basis points since September and the fiscal consolidation planned for financial year 2023.

The SBP added that the move was also in line with recent actions by other central banks, who it said have been “holding rates in recent meetings as global growth and commodity prices have slowed”.

“To contain external pressures and support the rupee going forward, it is important to contain the current account deficit by delivering the budgeted fiscal consolidation, lowering energy imports through energy conservation measures, and keeping the IMF programme on track,” the SBP explained.

Looking ahead, it said the MPC intended to remain data-dependent and pay close attention to factors such as month-on-month inflation, inflation expectations, developments on the fiscal and external fronts, as well as global commodity prices and interest rate decisions by major central banks.

According to the SBP press release, the MPC had noted “three key domestic developments” since its last meeting.

Firstly, it said headline inflation rose to 24.9pc in July and core inflation also ticked up, which it said was expected because of the reversal of the fuel subsidy, momentum in prices of essential food items and last month’s exchange rate weakness.

Secondly, “the trade balance fell sharply in July and the rupee has reversed course during August, appreciating by around 10pc on improved fundamentals and sentiment.”

Thirdly, it said that the IMF board meeting would take place on August 29 and is expected to release funds of $1.2 billion, as well as catalyse funding from multilateral and bilateral lenders.

“In addition, Pakistan has also successfully secured an additional $4bn from friendly countries over and above its external financing needs in FY23. As a result, FX (foreign exchange) reserves will be further augmented through the course of the year, helping to reduce external vulnerability.”

Regarding international developments, the MPC noted that global commodity prices and the US dollar had fallen in recent weeks and more emerging market central banks started holding policy rates in their recent meetings.

The above developments suggested that risks were shifting globally from inflation to growth.

“On balance, the MPC noted that some greater slowdown in global growth would not be as harmful for Pakistan as for most other emerging economies, given the relatively small share of exports and foreign private inflows in the economy.

“As a result, both inflation and the current account deficit should fall as global commodity prices ease, while growth would not be as badly affected,” it added.