Pakistan cenbank leaves key rate unchanged, signals tightening pause

The central bank has raised the rate by 1125 basis points since April 2022 to curb soaring inflation. The monetary policy committee (MPC) "views inflation to have peaked at 38% in May 2023, and barring any unforeseen developments, expects it to start falling from June onwards", the SBP said in a statement.

Pakistan's central bank kept its key interest rate unchanged on Monday, in line with market expectations, and signaled that it would pause its tightening cycle as record-high inflation may have peaked. The State Bank of Pakistan's (SBP) key rate remains at a record high of 21%. The central bank has raised the rate by 1125 basis points since April 2022 to curb soaring inflation.

The monetary policy committee (MPC) "views inflation to have peaked at 38% in May 2023, and barring any unforeseen developments, expects it to start falling from June onwards", the SBP said in a statement. The committee signaled it was likely done lifting rates for now, but acknowledged that stance was contingent on "effectively addressing the prevailing domestic uncertainty and external vulnerabilities."

"On balance, the MPC views the current monetary policy stance, with positive real interest rates on a forward looking basis, as appropriate to anchor inflation expectations and to bring down inflation towards the medium term target - barring any unexpected domestic and external shocks," the statement said. The committee expects domestic demand to remain subdued due to high interest rates, domestic uncertainty and continuing stress on the external account.

As well as soaring inflation, cash-strapped Pakistan has been grappling with fiscal imbalances and critically low levels of reserves that barely cover a month of imports. The International Monetary Fund's release of bailout funds have stalled, though talks are continuing.