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IMF applauds SBP’s decision to maintain policy rate, urges continued tight monetary policy

IMF applauds SBP's decision to maintain policy rate
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May 10, 2024 (MLN): Considering the risks to inflation and the criticality of re-anchoring expectations to the SBP’s medium-term inflation objective, the International Monetary Fund (IMF) staff welcomed Pakistan’s decision to keep policy rates on hold and underscored the need to continue a tight monetary stance, IMF said in its second and final review report published today.

The fund additionally stated that by adhering to a tight monetary policy, the central bank would effectively embed disinflation and exhibit that the monetary policy framework is well-suited for its intended purpose.

It is worth mentioning here that in the last Monetary Policy Committee (MPC) meeting held on April 29, the central bank kept the policy rate unchanged at 22% for the seventh consecutive meeting.

Pakistan agreed that any loosening of the policy stance should be supported by further evidence that inflation remains on a declining trend, pass-through remains contained, and possible exchange rate pressures from FX market normalization are limited.

IMF further alarmed that guiding inflation down successfully is critical to reinvigorating public confidence in a consistent and effective monetary policy framework.

This depends upon three main factors; the primacy of the medium-term inflation objective, relying on interest rate as the main policy tool (rather than the exchange rate as an intermediate tool) and ensuring monetary transmission operating, albeit slowly, through the standard channels.

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Posted on: 2024-05-10T21:24:09+05:00