SBP expect risks to GDP Growth, Inflation; Maintains Interest Rate

September 22, 2020

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Economic recovery and growth will continue to be a top priority for State Bank of Pakistan in the months ahead

The Monetary Policy Committee of State Bank of Pakistan in its Bi-monthly meeting decided to maintain the Policy Rate at 7%. The decision came amid the need to maintain a balance between supporting economic recovery and to restrict inflation.

The accommodating decision to maintain the rates confirms the market view of holding on the rates at the current level in the near to medium term. Economic recovery and growth will continue to be a top priority for State Bank of Pakistan in the months ahead.

However, the possibility of further decreasing the rates seem unfeasible at the time as the recent increase in inflationary pressures along with an expected increase in Electricity Tariffs, oil prices, and a further spike in food prices due to flooding & potential locust attack poses risks of higher inflation ahead.

Risks to Economic Recovery

SBP has noted in its Policy statement that Economic Growth after falling to -0.4% in FY2020, will increase to above 2% in FY2021. The economic growth is expected to come from Manufacturing activities and Construction sector.

However, SBP notes that a second wave of COVID19 in Pakistan and in export destinations poses threat to Pakistan’s economy. Further, Locust attack also remain a significant event for Pakistan’s Economy threatening food security and overall growth in Agriculture.

SBP however expects Inflation to remain between 7% to 9% in FY2021 with upside risks from impact of floods and locust Attack on Food Prices and Oil Prices revising upwards.