December 17, 2021 (MLN): The State Bank of Pakistan (SBP) will pause interest rate hikes to maintain economic recovery after delivering Asia’s boldest hikes since September 2021, Governor SBP Reza Baqir said while giving an interview to Bloomberg.
“We are going to take a pause to first look at the effects of the tightening we have already done,” Reza Baqir said, adding that fiscal policy has been very complementary and is also withdrawing stimulus so a coordinated macroeconomic response will be number one to sustain recovery and keep inflation broadly in check.
To note, SBP has emerged as the most aggressive and hawkish central bank in Asia right now as it has raised policy rates by a cumulative 275bps in three moves since September 2021 to curb the region’s fastest inflation and check a larger than anticipated gap of $5 billion in the November print of current account. This has taken a toll on the rupee, which has been the worst performer for the past six months among 13 Asian currencies monitored by Bloomberg.
“The pressure on the rupee is going to dwindle once demand drops,” Governor said.
Despite the rate increases, he expects the economy to grow by 5% this fiscal year after expanding 4% a year ago. “The economy is growing quite well,” he said, adding that the car sales in October grew about 41% YoY, textile exports grew about 29% YoY and the tax collections were up about 27%.
He believed that this economic recovery and the global developments including recoveries around the world, and supply change disruption have caused a sharp hike in global commodity prices which has pushed up current account deficit as well as inflation in Pakistan. “We estimate the 60 to 70% increase in current account deficit is due to the global commodity prices,” he stated.
