SBP keeps interest rate unchanged

The State Bank of Pakistan (SBP) decided on Friday to keep the interest rate unchanged at 5.75 per cent, according to a press release.
It said prospects of achieving the 6pc target of real GDP growth continue to be strong due to the availability of cheaper money and higher credit off-take by the private sector.
The SBP said economic activity is strong as corroborated by broad-based pick-up in the industrial output, gains in factors supporting the production of major crops and growth in private-sector credit. The interest rate has been kept unchanged since May 2016.
“Model-based projections for inflation and survey-based measures of inflation expectations show that in 2017-18 overall inflation is expected to remain well below the target of 6pc,” said the SBP. The central bank believes that inflation is expected to fall inside the range of 4.5-5.5pc projected at the start of 2017-18.
The bank said healthy growth in the tax collection by the Federal Board of Revenue (FBR) during the first quarter of 2017-18, 22pc compared to the modest 4.5pc during the first quarter of 2016-17, is a welcome development.
Near-term balance-of-payments challenges continue to persist, said the SBP, adding that the visible improvements in export growth, notable increase in foreign direct investments and expected other financial inflows will help contain these pressures.
During the first quarter of 2017-18, large-scale manufacturing (LSM) growth has surpassed its earlier expectations to reach 8.4pc compared to 1.8pc in the corresponding period of 2016-17. This is explained by improved security conditions and power supply, transformation of fixed investment into enhancements of productive capacity on the ground, low inflation and stable interest rates.
“Further support comes from the continuation of China-Pakistan Economic Corridor (CPEC) projects,” it said.
The SBP expects higher agriculture growth in the wake of an increase in both cultivated area and fertiliser off-take during the Kharif season, ongoing trend of investment in mechanisation, higher uptick in agricultural credit and unchanged support price for wheat at the time of its sowing.
“Demand for services is also expected to rise in 2017-18 given its interconnectivity with the other two sectors. Taking all the evidence together, real GDP growth is expected to meet its target level of 2017-18,” said the SBP.
The SBP said the stock of credit to the private sector grew on an annual basis by Rs814.9 billion in October – a growth of 18.5pc – compared to Rs436.4bn (11pc growth) in the corresponding period last year. The current account deficit widened to $5bn in July-October compared to $2.3bn during the corresponding period a year ago. Delving deeper, Pakistan’s exports have seen an improvement in July-October, growing at 11.3pc compared to the decline of 3.1pc in the comparable period last year. Similarly, remittances recorded a modest increase of 2.3pc in July-October.
“The impact of these positive developments on the overall current account was more than offset by growth in imports on account of rising domestic demand for consumption as well as investment and due to recent rise in international oil prices,” said the SBP.