KARACHI – Economic data released since the last Monetary Policy Committee(MPC) meeting in January 2019 indicates that the impact of stabilizationmeasures continues to unfold, stated State Bank of Pakistan (SBP) in apress release.
“In particular, the current account deficit recorded a sizeable contractionduring the first two months of 2019, which, together with bi-lateralinflows, helped ease pressures on SBP’s foreign exchange reserves. Thesedevelopments on the external front have improved stability in the financialmarkets, reduced uncertainty and improved businesses confidence, asreflected in various surveys.
“Nonetheless, despite narrowing, the current account deficit remains high,fiscal consolidation is slower than anticipated, and core inflationcontinues to rise.
“Average headline CPI inflation reached 6.5 percent in Jul-Feb FY19compared to 3.8 percent recorded in the same period last year. Meanwhile,YoY CPI inflation has risen considerably to 7.2 percent in January 2019 andfurther to 8.2 percent in February 2019 – the highest YoY increase ininflation since June 2014.
“Owing to stabilization measures, the current account deficit narrowed toUS$ 8.8 billion in Jul-Feb FY19 compared to a deficit of US$ 11.4 billionduring the same period last year- a fall of 22.6 percent.
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“Taking into account the above developments and the evolving macroeconomicsituation, the MPC noted that sustainable growth and overall macroeconomicstability requires further policy measures as: (i) underlying inflationarypressures continue; (ii) the fiscal deficit is elevated, and (iii) despitean improvement, the current account deficit is still high.
“In this backdrop and after detailed deliberations, the MPC decided toincrease the policy rate by 50 bps to 10.75 percent effective from 1stApril 2019”, read the press release.
