Contrary to the demands of the business circle to reduce the policy rate to five percent, the State Bank of Pakistan (SBP) decided on Tuesday, in line with market expectations, to keep the benchmark interest rate unchanged at seven percent for the next two months to support businesses during the fourth wave of Covid-19 pandemic. “At its meeting on 27th July 2021, the Monetary Policy Committee (MPC) decided to maintain the policy rate at seven percent. Since its last meeting in May, the MPC was encouraged by the continued domestic recovery and improved inflation outlook following the recent decline in food prices and core inflation,” the central bank said in a statement issued here on Tuesday after the MPC meeting. The business community and experts had been urging the SBP governor to reduce the policy rate to five percent for the past several months. Earlier, due to the lockdown imposed to contain the spread of Covid-19 in the country back in 2020, SBP had aggressively slashed the interest rate by 625 basis points to 7pc. Addressing the press conference, SBP Governor Reza Baqir said that this was the fifth consecutive time that the central bank decided to maintain the policy rate. “The reason for keeping the interest rate same is to focus on the growing momentum in the national economy,” he said. He said that the policy rate is lower than the inflation rate. “Economic experts term this a negative interest rate,” Baqir said, adding that the policy rate was lower than the inflation rate, and the country’s current account deficit was the lowest it has been in the last 10 years. Meanwhile, the SBP’s statement said, “If signs emerge of demand-led pressures on inflation or of vulnerabilities in the current account, the MPC noted that it would be prudent for monetary policy to begin to normalise through a gradual reduction in the degree of accommodation. This would help ensure that inflation does not become entrenched at a high level and financial conditions remain orderly, thereby, supporting the sustainable growth.” The MPC noted that there were good reasons to expect that, unlike, several previous growth upturns in Pakistan, the current economic recovery would be accompanied by external stability. Given expected resilience in remittances and an improving outlook for exports, the current account deficit is expected to converge toward a sustainable range of 2-3 percent of GDP in FY22. The statement said with the contained current account deficit and healthy commercial and official portfolios, and FDI inflows, Pakistan’s external financing needs of around $20 billion are expected to be more than fully met in FY22. As a result, foreign exchange reserves are projected to rise further.