The State Bank of Pakistan’s Monetary Policy Committee (MPC) decided to maintain the policy rate at 22 percent at its meeting on October 30, 2023. The MPC noted that inflation is projected to decline in October and then maintain a downward trajectory, especially in the second half of the fiscal year. However, the MPC also noted some risks to the outlook for inflation and the current account, including the recent volatility in global oil prices and the increase in gas tariffs from November 2023.

The MPC emphasized on continuing with the tight monetary policy stance to bring inflation down to the medium-term target of 5-7 percent by end-FY25. The MPC also reiterated that this outlook is based on continued fiscal consolidation and timely realization of planned external inflows.

The MPC welcomed the recent improvement in the current account balance and the narrowing of the fiscal deficit. However, the MPC noted that continued fiscal prudence is imperative for keeping inflation on a downward trajectory.

The MPC also noted that the broad money (M2) growth has decelerated and the reserve money growth has slowed down since June. This is primarily due to the continued slowdown in private sector credit and more than seasonal retirement in commodity operations financing.

The MPC expects inflation to decline significantly in October, owing to downward adjustments in fuel prices, easing prices of some major food commodities, and a favorable base effect. The Committee also reaffirmed its earlier assessment that inflation will decline substantially from the second half of FY24, barring any major adverse developments.

The MPC emphasized that the recent uptick and volatile trend in global oil prices, as well as the second-round effects of substantial increase in gas tariffs, pose some upside risk to the inflation outlook. Core inflation is also persisting at elevated levels; remained around 21 percent during the last four months. However, the Committee noted that fiscal policy is also contributing to the overall stabilization measures, which, coupled with better availability of food commodities, is likely to supplement the central bank’s efforts to bring down inflation.