The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) has announced its decision to maintain the policy rate unchanged at 22% for the sixth consecutive meeting, aligning with market expectations. The committee underscored the noticeable decline in inflation since the second half of Fiscal Year 2024 (H2-FY24) but highlighted lingering risks due to high inflation expectations. In light of this, the committee emphasized the importance of continuity in the current monetary stance to achieve the inflation target range of 5 – 7% by September 2025, contingent upon targeted fiscal consolidation and timely external inflows realization.


The MPC noted moderate economic activity growth in FY24, driven by a rebound in agriculture output. The agricultural sector, particularly Kharif crops like cotton and rice, displayed a robust performance, with promising prospects for the wheat crop due to increased cultivation area and favorable output prices. Large-scale manufacturing, despite a slight decline in July-January, is expected to recover owing to improved capacity utilization and favorable base effects. Moreover, leading indicators suggest a gradual recovery in the services sector.


The current account recorded a deficit of $269 million in January 2024, contributing to a cumulative deficit of $1.1 billion during July-January FY24, down by approximately 71% year-on-year. The improvement is attributed to a narrowed trade deficit driven by increased exports and decreased imports. Higher food exports and subdued import payments, supported by better domestic agriculture output and moderate domestic demand, have contributed to this trend. Additionally, workers’ remittances have risen consistently since October 2023, aided by incentives and regulatory reforms.


Fiscal accounts indicate ongoing fiscal consolidation, with the primary surplus improving to 1.7% of GDP in H1-FY24. However, the overall fiscal deficit expanded to 2.3% of GDP due to increased interest payments amidst high debt levels and reliance on costly domestic financing. The MPC emphasized the importance of continuing fiscal consolidation for macroeconomic and price stability.


Broad money (M2) growth moderated to 16.1% in February 2024 from 17.8% in December, primarily due to a contraction in private sector credit and commodity financing operations. Reserve money growth also decelerated sharply to 8.2% in February. Trends in monetary aggregates suggest a favorable inflation outlook.


Headline inflation declined considerably from 28.3% in January to 23.1% in February, reflecting the impact of contractionary monetary policy, fiscal measures, and improved food supplies. While energy inflation also decelerated, adjustments in administered energy prices continue to contribute to inflation. Sustained decline in inflation expectations of consumers and businesses is crucial, and risks from further adjustments in administered prices or fiscal measures remain.



Experienced Senior Research Analyst



Sikander Raza, a Senior Technical Analyst



Hamza Saleem, a Senior Business Analyst



Irsa Sajjad, as a Research Analyst for Equities

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