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SBP announces monetary policy for two months, maintains interest rate at 7%

SBP announces monetary policy for two months, maintains interest rate at 7%
November 23, 2020

During a meeting, the Monetary Policy Committee (MPC) decided to maintain the policy rate at 7 percent. "The recent rise in Covid cases in Pakistan and many other countries presents considerable downside risks. On the upside, while it could take some time to fully implement worldwide, there has been recent encouraging news on vaccine development. On the inflation front, recent out-turns have been on the higher side, primarily due to increases in food prices," it observed.

The meeting observed that recent data suggests a further strengthening and broadening of the recovery observed since July, led by construction and manufacturing. "Sales of Fast Moving Consumer Goods (FMCGs) rebounded in FY21 Q1, average sales volumes of POL and automobiles have surpassed their pre-Covid levels of FY20, and cement sales are at an all-time high. Nine out of 15 major manufacturing sectors have shown gains, including textiles, food and beverages, petroleum products, paper and board, pharmaceuticals, chemicals, cement, fertilizer, and rubber products."

It stated that the external sector continues to strengthen, with the current account in FY 21 Q1 recording the first quarterly surplus in more than five years. "After remaining in positive territory for all four months of this fiscal year, the cumulative current account through October reached a surplus of $1.2 billion against a deficit of $1.4 billion in the same period last year. Exports have recovered to their pre-COVID monthly level of around $2 billion in September and October, with the strongest recovery in textiles, rice, cement, chemicals, and pharmaceuticals," it added.

The MPC viewed that overall financial conditions remain appropriately accommodative, with the real policy rate remaining in slightly negative territory on a forward-looking basis. "While private sector credit growth is moderate on a year-on-year basis, its month-on-month momentum is reverting to pre-Covid trends."