The third reason is the uncertain global economic conditions, major economic powers may face recession, State Bank Director. Photo: File
Karachi: Bank Daulat Pakistan recently announced its monetary policy, increasing the policy rate by 100 basis points to 17 percent.
In the State Bank Podcast, Fida Hussain, Director, Monetary Policy Department, State Bank, has explained the main reasons behind the latest monetary policy decision. The Monetary Policy Committee has mentioned three important factors in its statement.
The first factor is the high level of inflation, which declined marginally from 26.6 percent in October to 23.8 percent in November and 24.5 percent in December 2022. Inflation has been on an upward trend over the past ten months, reflecting demand pressures as well as legacy effects of earlier increases in energy and food prices.
In addition, both businesses and consumers are worried about rising inflation. The committee said that if the central bank had not acted in the recent situation, these concerns could have led to further increase in inflation going forward.
According to the decision of the Monetary Policy Committee, the second important factor is the increase in short-term challenges to Pakistan’s external account and its prospects, despite a significant reduction in the current account. The foreign exchange reserves of the State Bank are decreasing due to fixed payments, while the inflow of funds expected due to uncertainty at both the international and domestic levels is not as per the estimate. The third important factor is the uncertain global economic conditions.
At present, the world economy is also suffering from slowdown and there are signs that recession may come in some major developed countries.
The international environment does not appear to be favorable for exports and remittances, and at the same time low commodity prices and periods of softening global financial conditions can be taken advantage of.
For example, interest rate hikes by central banks in developed countries can help restore capital flows to emerging economies and developing countries, if at a slower pace, and for them in international capital markets. It can be easy to take advantage of.
In the future we expect to benefit from marginally falling commodity prices and if this trend continues, it will have a positive impact on our imports and current account.
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