KARACHI – The State Bank of Pakistan (SBP) has increased the interest rateby 150 basis points to 13.75 percent for the next six weeks to maintain thebalance between inflation and economic growth.
The Monetary Policy Committee of the central bank announced that it hasjacked up the key interest rate. It said that since the last meeting, theprovisional estimates suggest that growth in the current fiscal year hasbeen much stronger than expected.
The statement said, “This action, together with much needed fiscalconsolidation, should help moderate demand to more sustainable pace whilekeeping inflation expectations anchored and containing risks to externalstability.”
It maintained “Domestically, an expansionary fiscal stance this year,exacerbated by the recent energy subsidy package, has fueled demand andlingering policy uncertainty has compounded pressures on the exchange rate.”
The central bank noted that inflation has intensified due to the ongoingRussia-Ukraine conflict and renewed supply disruptions caused by the newCovid-19 wave in China.
It continued “As a result, almost all central banks across the world aresuddenly confronting multi-year high inflation and a challenging outlook.”
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State Bank noted that it was of the view that the interest-rate hike wouldhelp to safeguard external and price stability.
The announcement comes at a time when the Pakistani rupee continued itsslide for the 13th consecutive session and slipped to 200.93, against theUS dollar in the inter-bank market.
The South Asian country is facing other issues including falling foreignexchange reserves, current account deficit, and expectations of higherinflation in the coming months.
