SBP keeps policy rate unchanged at 5.75%

KARACHI, Jan 28 (APP): The Monetary Policy Committee of the State
Bank of Pakistan (SBP) has decided to keep the policy rate unchanged
at 5.75 per cent for next two months.
Talking to the media here, SBP Governor Ashraf Mahmood Wathra said
the average inflation clocked in at 3.9 per cent during the first
half of the current financial year, lower than the earlier projections
due to smooth supply of perishable items, stable exchange rate, and government’s absorption of the impact of higher international oil
“The current trends suggest that the actual inflation will be
lower than the target rate of 6 per cent in fiscal year 2017 (FY17),” he added.
He said growing China Pakistan Economic Corridor (CPEC) related imports, decline in exports, absence of Coalition Support Fund, and
slowdown in remittances pushed the current account deficit to $3.6 billion in the first half of FY17, from $1.7 billion in the same period last year.
The higher deficit was financed by an increase in bilateral and
multilateral funding along with pick up in investment flows, he said, that overall surplus in the balance of payments stood at $0.2 billion in the first half of the current year.
Going forward, with the aforementioned risks to the external sector,
the need of financial inflows would grow further, the Governor noted.
He said a sizeable net retirement of government borrowing to
scheduled banks and an increase in bank deposits helped increase private sector credit. Benefiting from the historic low interest rates, private
businesses were actively borrowing from the banking sector for upgrading and expanding their business processes.
The private sector, he added, borrowed Rs 375 billion in the first
half of FY17 as compared to Rs 282.6 billion availed in the corresponding period of last year. Loans for fixed investments increased by Rs 134.1 billion in the first half of FY17 compared with an expansion of
Rs 83.8 billion in the same period of last year while demand for consumer financing, especially for auto loans, also gathered pace during the first half of the year.
The SBP Governor said healthy credit expansion, along with higher production of Kharif crops, visible improvements in energy supply, and upbeat business sentiments signalled recuperating real economic
activities. Large scale manufacturing grew by 3.2 per cent during the first five months of the current fiscal year and further increase was expected on account of growing infrastructure spending and recent policy support for export oriented sectors, he added.
Based on an assessment of the above developments and after
detailed deliberations, he said, the Monetary Policy Committee decided to keep the policy rate unchanged at 5.75 per cent.