PAKISTAN’S central bank kept its key rate unchanged at 22 per cent on Monday (Jul 31) after a scheduled meeting of its monetary policy committee, with inflation expected to decline gradually in coming months, the bank’s governor said.

Governor Jameel Ahmad told a press conference that the inflation outlook for the next fiscal year was between 20 per cent and 22 per cent, in line with government projections and that Pakistan’s deal with the International Monetary Fund (IMF) had not necessarily required a further rate hike.

“The IMF did not say anywhere that we have to increase rates,” Ahmad said. “They said the policy stance should be aggressive and we will go forward with an aggressive policy stance.”

The monetary policy committee meeting was the first since a new US$3 billion bailout was approved by the IMF earlier this month for the ailing economy that had been teetering on the brink of a global debt default.

Ahmad said Pakistan was on “on course” to meet the medium-term inflation target of 5-7 per cent and that the bank would ensure it complied with the IMF requirement of keeping the open market and inter bank rates for the currency close to one another.

The IMF signalled following the bailout that the bank must continue with its monetary tightening cycle to tame inflation.

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The State Bank of Pakistan (SBP) has raised its key policy rate by 12.25 percentage points since April 2022, to curb soaring inflation.

The rise in the consumer price index rise slowed in June from a record high of 38 per cent year on year in May, but remained elevated at 29.4 per cent. The CPI index decreased 0.3 per cent in June from May.

The government projects inflation to average 21 per cent for the current fiscal year that started on Jul 1. The IMF, however, forecasts inflation at 25.9 per cent for the same period.

Pakistan’s central bank raised the key rate by 100 basis points to 22 per cent in an off-cycle meeting in June, just weeks after having held rates at a scheduled meeting.

The bank noted on Monday that the economic uncertainty has decreased since the last meeting, while near-term external sector challenges have been largely addressed and investor confidence had improved. It projected real GDP growth of between 2 per cent and 3 per cent for this fiscal year.

Pakistan’s government said the rates had been increased on the IMF’s demand in the run-up to the approval of the new bailout agreement. REUTERS