Inflation is expected to remain close to 10 percent, although some impact of the base effect of recent spikes in the rate will ease. The LoI further stated that to contain accelerating inflation rates, the State Bank of Pakistan (SBP) began to tighten monetary policy with a 50 basis points increase in the policy rate in September. Going forward, the SBP is committed to taking additional policy actions as and when needed to assure achievement of its reserve accumulation and price stability.
The exchange rate will remain flexible and will reflect market conditions. Calibrated interventions in the foreign exchange market will be aimed at meeting the programme's reserve targets and ensuring smooth functioning of the market. The policy interest rate will also be adjusted as needed to ensure positive real interest rates and an attractive interest differential to encourage capital inflows. We will continue to keep our net swap/forward position at end-June 2013 level and will gradually reduce it over time, with the lengthening of maturities. The SBP lending to the government will remain within agreed targets and limit open market liquidity injections to the economy to those consistent with the programme.