KARACHI: The Monetary Policy Committee (MPC) of the State Bank has decided to maintain the policy rate at 7%.

The MPC has given forward guidance, the outlook of interest rate in times to come, this time to boost the confidence of investors.   

“We are now in a much better position [economically] to give forward guidance,” said State Bank Governor Dr Reza Baqir in a press briefing on Friday. “We are seeing interest at this level in future. And if changes have to be made then it will happen in an orderly manner.”    

The interest rate stood at a level of 13.25% till early last year before the economy came under immense pressure due to the COVID-19 pandemic. The State Bank brought down policy rate to 7% in few months to give support to the deteriorating economy.       

Baqir attributed the stability in the economy to improvement in current account balance. Pakistan’s current account balance generally remains in deficit but during the first six months of the ongoing fiscal year, current account is in surplus of $1.13 billion. It has also helped in building reserves to over $13 billion. The current balance was in a deficit of $2 billion for the same period last year.

He further said that market-based exchange rate has also helped the current account show improvement.   

He added that the economy has improved but the monetary policy supports recovery. A stable policy rate will help economy to recover further.  

Baqir said that the expectations are the inflation rate will remain between the range of 7% to 9% during the fiscal year 2021. Moreover, the inflation country saw was either due to food inflation or due to electricity or oil prices, which are temporary, therefore the decision was taken to maintain the policy rate.