Pakistan Economy_MPS Review, A digression from tightening stance, (AKD Daily, Aug 23, 2022)
MPS Review: A digression from tightening stance
Against our forecast of a 50bps hike, the central bank decided to keep the benchmark
interest rates unchanged at 15% pointing out that domestic demand had started to moderate
after 800bps cumulative rise in interest rates over the 9 months.
The central bank also pointed out to the proactive monetary policy it had adopted which
was in contrast to the strategies adopted by other central banks in the region. The country
had posted two successive years of high growth in the post pandemic era and had
room for monetary tightening. The central bank remains confident that current monetary
settings will help ease the overheating concerns in the economy by FY23 end and the real
GDP growth will converge to its long term path.
The ongoing monsoon spell poses risks to country’s growth aspirations and may induce
another wave of inflationary pressures in the local commodity prices. The central bank is
currently awaiting more data points but stands prepared in case more policy interventions
maybe needed.
With ST external debt standing at only 6% of its total external debt position, the country
is in a comfortable position regarding debt management and will not need to re-profile
its debt. Also, the country’s gross borrowing needs are estimated ~US$33bn which will be
easily met after total financing of US$37bn (including IMF), had already been arranged.
As for the key economic indicators, the central bank expects the headline growth for FY23
to settle around 3% - 4%, CPI inflation in the range of 18% - 20%, CAD ~3% of GDP and
primary surplus 0.2% of GDP.
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