Economic Update: SBP Holds Interest Rate Steady Amidst Positive Signs
In a recent announcement, the State Bank of Pakistan (SBP) has decided to keep the policy interest rate steady at 11%. This decision comes after observing steady inflation rates and signs of economic improvement across various sectors. SBP Governor Jameel Ahmed highlighted that the current inflation stands at 7.2%, showing a slight uptick in May and June—but still within manageable levels.
Last fiscal year, Pakistan recorded an average inflation rate of 4.5%. Interestingly, food and core inflation had seen declines, although core inflation might see a resurgence in the coming months. Despite this, the economic outlook remains optimistic. Exports have grown by 4%, and remittances soared by $8 billion, marking a significant support for the country’s external account surplus—an achievement not seen in 14 years.
A noteworthy observation is the surge in imports, which increased by 11%. Non-oil imports spiked by 16%, a reflection of improved economic activity. While the current account has a surplus in 2023, forecasts indicate a deficit of up to 1% of GDP for the current fiscal year, primarily due to rising imports. However, remittances are projected to surpass $40 billion this year, further solidifying the economic landscape.
The SBP has forecasted economic growth between 3.25% and 4.25% for this fiscal year, buoyed by favorable conditions in the agricultural sector thanks to improved rainfall and water availability. The industrial and services sectors are also expected to thrive, creating a more robust job market.
One concern, however, remains the hefty external debt repayments, which stand at $25.9 billion due this fiscal year. Yet, debt servicing costs have eased due to lower interest rates on newer loans and extended repayment terms. International credit rating agencies have responded positively, upgrading Pakistan’s credit rating and reflecting improved debt sustainability.
Governor Ahmed reassured that the SBP and the government effectively managed external payments last year, enhancing reserves by $5 billion, despite $10 billion in debt repayments. Currently, foreign exchange reserves exceed $14 billion, surpassing this year’s debt obligations. The bank projects reserves to reach $15.5 billion by December, with an ambitious target of $17.5 billion set for June 2026.
The SBP closely monitors two legal foreign exchange markets: the interbank market and exchange companies, but remains vigilant against the underground illegal currency market, working alongside law enforcement agencies to curb any illicit activities.
As we witness the unfolding of positive economic changes, it’s essential to stay informed and connected with reliable resources. For those interested in further exploring economic insights or enhancing their financial knowledge, you might want to check out Pro21st. Engaging with such platforms can empower your understanding of the evolving financial landscape in Pakistan and beyond.
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