welcome to MASE economicsis the go-to source for insightful analysis of economic development. This in-depth study analyzes the latest information. monetary policy statement The State Bank of Pakistan announced on September 14, 2023. Our goal is to analyze key points, provide insights and present a clear understanding of Pakistan's current economic situation, monetary policy decisions and their potential impact.
Let's take a closer look at the important points.
![Summary of Pakistan Monetary Policy Statement for September 2023](https://maseconomics.com/wp-content/uploads/2023/09/Summary-of-Monetary-Policy-September-2023-1024x575.webp)
Major monetary policy decisions
Policy interest rate maintained at 22%: The Monetary Policy Committee (MPC) decided to keep the policy rate at 22% at its latest meeting. This decision is consistent with the assessment that inflation continues to decline from 38 percent in May to 27.4 percent in August 2023. Despite recent increases in global oil prices, the Committee expects inflation to continue on a downward trajectory, particularly this year. Latter half. This decision will keep real interest rates favorable and support price stability. Furthermore, improvements in agricultural output and measures to curb speculative activity in foreign exchange and commodity markets are contributing positively to the inflation outlook.
The decision to keep the policy rate at 22% is prudent given the delicate balance between controlling inflation and promoting economic growth. This approach acknowledges the positive trajectory of agriculture and measures to moderate speculative activity, which favorably contributes to the inflation outlook.
Main developments since July
We highlight four important changes:
- agricultural outlook: Positive developments in agriculture are evident from data on the arrival of cotton, favorable input conditions and satellite data showing healthy vegetation of other crops.
- world oil prices: Oil prices are on the rise, currently hovering around $90 per barrel, which could impact Pakistan's import bill and inflation.
- current account deficit:After four consecutive months of surplus, the country recorded a current account deficit in July, partly due to the easing of import restrictions.
- Administrative and regulatory measures: Efforts to improve the availability of essential food items and curb illegal activities in foreign exchange markets have begun to bear fruit, with the gap between interbank exchange rates and open market exchange rates narrowing.
An assessment of significant progress highlights the multifaceted challenges facing Pakistan. While the positive outlook for agriculture and efforts to stabilize essential goods are encouraging, the shift from current account surplus to deficit highlights the need for a sustainable strategy to strengthen the external balance.
MPC focuses on inflation and fiscal responsibility
The MPC remains vigilant about risks to the inflation outlook and stands ready to take the necessary steps to maintain price stability. At the same time, they emphasize the importance of maintaining a prudent fiscal stance to control aggregate demand. This fiscal prudence is critical to achieving the medium-term goal of an inflation rate of 5-7% by the end of FY2025.
The MPC's focus on inflation and fiscal responsibility is commendable. Achieving the right balance between monetary and fiscal policy is essential to achieving sustained economic stability. Ensuring that fiscal measures are consistent with monetary policy objectives is a step in the right direction.
Outlook for the physical sector
High-frequency indicators suggest a modest improvement in economic activity. Sales of key materials such as POL, fertilizers, and cement recovered moderately, with imports increasing slightly. The outlook for the agricultural sector improved as concerns about flooding eased and cotton arrivals increased. Domestic demand is expected to remain subdued due to monetary tightening and fiscal consolidation, consistent with previous expectations for moderate growth.
The outlook for the real sector is mixed, with some areas showing some improvement. The challenge is to maintain this momentum and address structural issues to foster strong economic growth.
Evaluation of external departments
After four months of surplus, the current account balance recorded a deficit of $809 million in July 2023. Nevertheless, overall imports are expected to remain subdued due to favorable trends in non-oil commodity prices, moderate domestic demand, and improving cotton production. Structural reforms at foreign exchange companies will strengthen governance and market functioning, supporting export prospects.
Efforts to strengthen the resilience of the external sector are commendable. Structural reform of foreign exchange companies can strengthen the country's export capacity and diversify its revenue sources.
Finance department latest information
In the first two months of FY24, FBR's revenue increased by 27.2% year-on-year, reflecting fiscal measures and economic recovery. In order to support the price stability target of monetary policy, it is essential to achieve the primary fiscal surplus target of 0.4% of GDP. Sustainable economic growth requires fiscal consolidation through broadening the tax base, targeted subsidies, and public sector reform.
The fiscal sector update shows progress, but challenges remain. Achieving a primary surplus is essential to maintaining price stability and economic sustainability. Continued efforts to widen the tax base and reform public enterprises are steps in the right direction.
money and credit status
As of September 1, M2 growth has slowed to 13.6% year-on-year, mainly due to a slowdown in lending to the private sector. Fiscal consolidation, planned external inflows, and increased economic activity are expected to provide room for modest expansion of private sector credit this year.
Balancing your money and credit situation is a delicate job. The slowdown in M2 growth is consistent with the need to control credit expansion while maintaining economic activity.
Inflation outlook
CPI inflation fell to 27.4% in August, mainly due to subdued food prices. However, the decline was more gradual than expected, primarily due to higher global oil prices and the impact on managed energy prices. Short-term inflation expectations have reversed, partly due to uncertainty in the foreign exchange market. Regulatory measures and law enforcement are expected to address supply constraints and illegal foreign exchange market activities, particularly in the second half of this year, which will further the downward trajectory of inflation.
The inflation outlook is central to economic stability. Addressing supply constraints and curbing illegal foreign exchange market activities are important to achieving price stability.
conclusion
Pakistan's monetary policy is prudent, focusing on inflation control and fiscal responsibility, while recognizing positive developments in agriculture and the external sector. Monitoring the evolving economic landscape is critical to guiding future policy decisions.
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