The State Bank of Pakistan has called the decline in exports receipts as worrisome despite the fact that the country has achieved macroeconomic stability, improved law and order and brightened up the prospects for foreign direct investment in projects related to the China Pakistan Economic Corridor. However, the overall domestic environment can pave the way for sustainable growth in the export sector with better value addition and diversification of products. In a monetary policy statement announced by the board of directors, the State Bank has maintained its policy rate at six percent. The bank says that year on year inflation has increased from 1.3 percent in September 2015 to 3.9 percent in March 2016, showing average increase in inflation from 1.7 percent to 2.6 percent. The statement says that trends in inflation indicate pickup in aggregate demand with improved security situation and growth in real income while budget deficit are contained within the manageable limits.
The bank finds healthy signs in the growth of construction activities, rising demand of consumer goods and expansion in the services sector, which is also supported by increase in credit to private sector because of the lower cost of borrowing. Besides, improved business sentiments, lower input prices and better energy supply, have augur well for the economy. It says that with positive consumer sentiments and incremental lending rates at lower levels, the uptake in credit to private sector is likely to end on a higher level in financial year 2016 than the previous year. The large-scale manufacturing, including automobile, cement and fertilizer sectors, has recorded a growth of 4.1 percent during six months of the current fiscal year as compared to 2.5 percent during the previous year. The bank expects that improvement in the large-scale manufacturing and industrial growth trends will continue despite issues in steel, paper and textile sectors. The low oil price in the international market to continue downward pressure on inflation while there is adequate stock of major food items in the country for the domestic consumers.
The SBP has taken promising as well as cautious approach toward financial discipline in the country and is also resisting the pressure from some circles to devaluate the Pakistani rupee. If the rupee falls, the floodgates of inflation will open and it will adversely affect not only the economy but also living standard of common man. According to the bank, tranquility prevailed both in money and foreign exchange markets due to decline in oil prices, increase in remittances from expatriate Pakistanis and calm in the international capital markets. However, trade deficits also need to be contained at minimal level to keep the financial discipline intact.