In order to combat inflationary pressures and guarantee that growth is sustainable, the State Bank of Pakistan (SBP) raised the policy rate by 100 basis points to 16 percent on Friday.
The central bank stated in a statement that “this decision reflects the MPC’s judgment that inflationary pressures have proven to be greater and more persistent than expected.”
The action was intended to prevent persistently high inflation and to reduce financial stability risks, opening the door for faster growth with a more sustainable foundation, it added.
Amid the ongoing economic slowdown, inflation is increasingly being driven by persistent global and domestic supply shocks that are raising costs.
“In turn, these shocks are spilling over into broader prices and wages, which could de-anchor inflation expectations and undermine medium-term growth. As a result, the rise in cost-push inflation cannot be overlooked and necessitates a monetary policy response.”
The MPC pointed out that the immediate costs of containing inflation are lower than the long-term consequences of permitting it to continue.
While doing so, a top focus continues to be reducing food inflation through administrative procedures to clear up supply-chain bottlenecks and any required imports.