ISLAMABAD: The State Bank of Pakistan (SBP) on Thursday announced the monetary policy, increased the interest rate by 25 basis points to 10.25 per cent.
The policy was announced by SBP Governor Tariq Bajwa following a meeting of the Monetary Policy Committee.
“Real economic activity has witnessed a marked slowdown in the first half of the year,” Bajwa said, adding that the central bank expected economic growth to slow to around 4 per cent in fiscal year 2019 from 5.8 per cent in 2018.
Turning to the fiscal deficit, which widened to 1.4 per cent of GDP in the first quarter of the fiscal year amid a sharp fall in tax revenues, Bajwa said the government, which this month announced a “mini-budget” of measures to stimulate exports, had to do more.
“While there is some good, substantial progress on the current account side, we need to probably do more on the fiscal side,” he said.
Bajwa noted that the current account deficit narrowed by 4.4 per cent in the first half of the year to some $8 billion, largely driven by a sharp drop in imports of goods and services as well as growth in overseas remittances.
However, financing the current account deficit remained “challenging” as investment and official inflows were insufficient to completely finance the deficit.
As a result, foreign exchange reserves fell to $7.2 billion by the end of December, a figure which was lifted to $8.2 billion following the deposit of $1 billion from the United Arab Emirates last week.
With another $2 billion due to come from the UAE, credit facilities on oil shipments from Saudi Arabia and the UAE and some commercial loans, Bajwa said the immediate balance of payments crisis that had been facing the government had eased.
“I think that as far as this year’s current account is concerned, the financing needs have more or less been covered,” he said.