In response to growing inflation, the State Bank of Pakistan (SBP) said on Thursday that it had raised the interest rate by 300 basis points (bps) to 20%, the highest level since October 1996. Following a meeting of the bank’s Monetary Policy Committee (MPC), the announcement was made.
The central bank stated in a statement that the choices were made in light of the “deterioration in inflation forecast” and its expectations in light of recent external and fiscal adjustments.
According to MPC, this scenario “justifies a comprehensive policy response to anchor inflation expectations around the medium-term objective of 5-7pc,” the organization said.
The SBP stated that while lowering the current account deficit (CAD) was crucial, it also required coordinated efforts to improve the external reality. It further emphasized that any considerable fiscal slippage would reduce the efficacy of monetary policy in pursuing the goal of price stability.
On February 28, the SBP announced that it has summoned a meeting of its Monetary Policy Committee for today, March 2 (two weeks ahead of schedule), when it was anticipated to raise the main policy rate.
The Monetary Policy Committee’s upcoming meeting has been postponed and will now take place on Thursday, March 2, 2023, the SBP announced in a brief statement.
The Monetary Policy Committee of the central bank was previously scheduled to convene on March 16. Off-cycle rate reviews are nevertheless common.
Pakistan is taking important steps to obtain IMF funding, such as raising taxes, eliminating all subsidies, and placing artificial currency rate restrictions. According to media sources, the agency anticipates a hike in the policy rate even if the government anticipates reaching an agreement with the IMF soon.
