The State Bank of Pakistan (SBP) has announced to keep the policy rate unchanged at 7 per cent – hoping that the current account deficit will remain in the range of 2 to 3pc in FY22.
SBP Governor Dr Reza Baqir, while announcing the Monetary Policy for the next two months on Tuesday, said the market-based exchange rate system, surging remittances, an improving outlook for exports, and appropriate macroeconomic policy settings should help contain the current account deficit in a comfortable range of 2-3pc of GDP in FY22.
“Given the expected rise in remittances and an improving scenario of exports, the current account deficit is expected to stay in a sustainable range of 2-3pc of GDP in FY22.”
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He said that the interest rate is kept unchanged at 7% for the next two months to ensure that the cost of borrowing from banks stay at a low level and the economy is allowed to grow by 4-5% in the ongoing fiscal year.
The Governor said the policy rate had been maintained to support recovery in the economic activities to pre-Covid levels despite a surge in the inflation reading and the recent depreciation of the Pakistani currency.
The inflation rate dropped to 8.9% in FY21 compared to 10.74% in FY20.
He said the economic growth, as a result of positive developments, is projected to rise from 3.9pc in FY21 to about 4-5pc during the current financial year, and the average inflation to range between 7-9pc this year from its recent higher out-turns.
Pakistan’s external position is at its highest in several years. In line with the SBP projections in March 2021, the current account deficit dropped to 0.6pc of the GDP. “This is the lowest current account deficit in about 10 years, supported by all-time high exports and remittances,” Baqir said.