SBP Raises Policy Rate By 250 Basis Points to 12.25%

Web Desk — The Monetary Policy Committee of the State Bank of Pakistan (SBP), at an emergency meeting, decided to raise the policy rate by 250 basis points to 12.25%.

The SBP, in a surprise statement, said that since the last MPC meeting, the outlook for inflation has deteriorated and risks to external stability have risen.

“The MPC decided at its emergency meeting to raise the policy rate by 250 basis points to 12.25 percent,” it said on Thursday. “This increases forward-looking real interest rates (defined as the policy rate less expected inflation) to mildly positive territory.”

The SBP’s announcement comes on the day when the rupee hit yet another record low against the US dollar, closing over the 188 level in the inter-bank market. Thursday’s depreciation brought the cumulative fall to nearly 6% since March alone.

In its statement, the MPC said it was of the view that the interest-rate hike would help to safeguard external and price stability.

“The MPC also noted that SBP is in the process of taking further actions to reduce pressures on inflation and the current account, namely an increase in the interest rate on the export refinance scheme (EFS) and widening the set of import items subject to cash margin requirements.

“These items are mostly finished goods including luxury items and exclude raw materials. The announcement of these measures is expected soon and will complement the action taken by the MPC on interest rates today.”

It highlighted that Pakistan’s external financing needs in FY22 are fully met from identified sources.

“Looking ahead, the MPC noted that today’s decisive actions, together with a reduction in domestic political uncertainty and prudent fiscal policies, should help ensure that Pakistan’s robust economic recovery from Covid-19 remains sustainable.”