Muhammad Soban

The State Bank of Pakistan (SBP) has decided to maintain the policy rate at 15% for the next eight weeks in order to "strike an appropriate balance between inflation management and growth maintenance."

However, the central bank has also lowered its estimate for economic growth for the fiscal year that began on July 1 to around 2%, down from a projected 3% to 4%.

The bank’s Monetary Policy Committee (MPC) has noted that the economy has continued to decelerate, headline inflation has declined, and the current account deficit has decreased.

There has been a significant economic slowdown since the last MPC meeting.

According to the SBP, most demand indicators, including cement, oil products, and automobile sales, were lower in July and August than in the same period a year ago.

For the second consecutive month, the current account deficit shrank to only $0.7 billion in August, almost half of the July figure. During September, the trade deficit declined by 19.7% month-on-month and 30.6% year-on-year to reach $2.9 billion, reflecting a decline in energy imports and stable exports.

Regarding the fiscal sector performance in July, the SBP noted that fiscal results were better than during the same period last year.

The fiscal deficit decreased to 0.3% of GDP, while the primary balance grew by 0.2%. SBP attributed the improvement to higher tax revenues and a decline in government spending.

The central bank has said that additional foreign inflows, including in the form of grants, should help fund any fiscal slippages.

According to the SBP, private sector credit has been retired by Rs0.7 billion in line with slowing economic activity this fiscal year, compared to an expansion of Rs62.6 billion during the same period last year. The decline in credit is primarily due to a decline in consumer finance and a retirement of working capital loans.

The headline inflation rate fell by more than 4 percentage points year-on-year in September after peaking in August, owing to a reduction in electricity prices induced by administrative intervention. Additionally, inflation momentum slowed by more than expected, declining by 1.2% month-on-month.

Meanwhile, both core and food inflation increased. The SBP expects headline inflation to decline gradually through the rest of the fiscal year, especially in the second half.

Credit : Independent News Pakistan-WealthPk