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January 18, 2020

Pakistan Maintains Key Policy Rate Unchanged at 6%

Pakistan’s Central Bank kept the key policy rate unchanged at 6% in its latest Monetary Policy Statement announced at the weekend.

Announcing the decision the State Bank of Pakistan highlighted recent uptick in inflation that has risen from bottom of 1.3% in Sep 2015 to 4% in Mar 2016.

“This rise in inflation was expected due to low base effect of previous year. Further, the increase was below initial expectations as month-on-month inflation for the last 7 months averaged only 7bps as against expectations of 30 to 40 basis points  due to higher than expected fall in commodity prices,” Karachi-based Brokerage House Topline Securities said in its comments.

During remainder of FY16, Topline Securities expected inflation to come down as low base effect of last year wears off and expect Jun 2016 inflation at less than 3%, and that for the whole year to 2.75%, below SBP’s inflation range of 3%-4%.

SBP also expects downward pressure on inflation going forward due to continued low fuel prices and higher food stocks.

SBP expects the aggregate demand is gradually picking up due to lower input prices and better security situation.

Pakistan posted a fiscal deficit of mere 1.7% in the first half of the 2015016 fiscal year due to cut in expenditure and an uptick in federal tax revenues of 14.6% year-on-year.

SBP is maintaining positive outlook on Balance of Payments (BoP) in remaining months of FY16. BoP for the first eight months of the fiscal year to February for in surplus and added to reserves due to growth in remittances (up 6.1%), higher foreign direct investment (up 4.7%) and higher disbursements (up 60%).

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