KARACHI: The State Bank of Pakistan (SBP) on Friday decided to keep the policy rate unchanged at 13.25 percent, saying the projection for average inflation for FY20 broadly remained unchanged at 11-12 percent and maintaining the current monetary policy stance was appropriate for the country.

The central bank had previously raised the key policy rate back in July after the country secured $6 billion bailout program from the International Monetary Fund (IMF).

“The decision reflected the Monetary Policy Committee’s view that recent developments have had offsetting implications for the inflation outlook,” the bank said in a statement. “On the one hand, recent inflation outturns have been on the higher side. On the other, the causes behind these outturns have primarily been increases in food prices which are expected to be temporary.”

The SBP believes that inflation, which is at the higher side at present due to rise in food prices, will cool down over the next two years. 

“The MPC [Monetary Policy Committee] noted that recent outturns of month-on-month inflation had been higher than in previous months and if sustained could affect inflation expectations,” the statement added. “Nevertheless, in light of the temporary nature of these increases, continued softness in domestic demand, and recent appreciation of the currency on the back of improving market sentiment, the MPC was of the view that inflationary pressures were expected to recede in the second half of the fiscal year.”=

The central bank kept its projection for GDP growth for FY20 unchanged at around 3.5 percent as the recent economic data suggest that economic activity is strengthening in export oriented and import competing sectors while inward oriented sectors continue to experience a slowdown in activity.