KARACHI: The State Bank of Pakistan has decided to keep the interest rate unchanged at 13.25 percent, saying supply side inflation continued to exert pressure on the economy.
State Bank Governor Reza Baqir said that when the monetary policy committee had decided the interest rate in July, inflation stood at 8.4 percent.
“A few months after that, inflation rate kept on increasing. It [inflation rate] kept on increasing after that. Most recently, it stood at 12.4 percent,” he said.
The state bank governor said that inflation had increased due to the increase in food prices and hike in utility bills. He said that the economic team was of the opinion that inflation will decline in the coming days to around five to six percent.
He said that inflation expectations were “stable and constant” stating that inflation would decrease but it was difficult to predict when that will happen. “We know that in the long run, inflation will decline,” he said.
The SBP governor said that the real interest rate determined whether a monetary policy was loose or tight. He said that previous records have showed that the real interest rate, on average, had been 3 percent. “Our real interest rate is below the average,” he said.
He said that due to “adverse supply shocks” agricultural production may decline a bit this year. “However, if you look at other sectors, the volume of production is increasing,” he said, citing the example of cement industry where the consumption and production were increasing.
Baqir said that the momentum of economic activity would rise as Pakistan had passed its lowest phase. He said that export-oriented sectors were registering strong performances due as the exchange rate currency had improved.
“If we want our reserves to rise, it is important that we keep on supporting our export industry,” he said. Baqir said that the SBP had decided to increase two important schemes of the central bank —Long Term Finance Scheme (LTFF) and the Export Finance Scheme — by Rs200 billion.
“We are increasing the existing number of credit provided to these two schemes by Rs200 billion for export-oriented sectors,” he said, announcing that the LTFF scheme will be allocated an additional Rs100 billion.
He said that all export sectors will be eligible to apply for the LTFF scheme as opposed to it being available for only particular exporters. “We are also increasing the limit of the LTFF billion, which was previously Rs2.5 billion, to Rs5 billion,” he said.
Baqir said that the government will also introduce a new export scheme in the coming days for “small exporters” who want to innovate and create new products so that they are not left out of the incentives.