ISLAMABAD – State Bank of Pakistan has increased the key interest rate by150 basis points to 12.25 percent.
In a statement issued after the meeting of Monetary Policy Committee inKarachi today, the central bank said the new rate will be in effect fromtomorrow.
It said that economic growth is expected to slow in current financial yearbut rise modestly in the next.
This slowdown is mostly due to lower growth in agriculture and industry.
Some gradual recovery in economic activity is expected on the back ofimproved market sentiment in the context of the IMF supported program, arebound in the agriculture sector and government incentives for exportoriented industries.
The statement noted that current account deficit narrowed to 9.6 billiondollars in Jul-Mar FY19 as compared to a deficit of 13.6 billion dollarsduring the same period last year, a fall of 29 percent.
The reduction is mainly driven by import compression and a healthy growthin workers’ remittances.
The State Bank said the recent movement in the exchange rate reflects thecontinuing resolution of accumulated imbalances of the past and some roleof supply and demand factors.
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The Central Bank will continue to closely monitor the situation and standsready to take measures, as needed, to address any unwarranted volatility inthe foreign exchange market.
The bank said that the overall fiscal deficit is likely to be considerablyhigher during Jul-Mar FY19 as compared to the same period last year due toa shortfall in revenue collection, higher than budgeted interest paymentsand security related expenditures.
The Central Bank said average headline CPI inflation is expected to be inthe range of 6.5-7.5 percent this financial year and it is anticipated tobe considerably higher in the next financial year.
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