State Bank of Pakistan raises key interest rates yet again

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State Bank of Pakistan raises key interest rates yet again

KARACHI - Economic data released since the last Monetary Policy Committee (MPC) meeting in January 2019 indicates that the impact of stabilization measures continues to unfold, stated State Bank of Pakistan (SBP) in a press release.

“In particular, the current account deficit recorded a sizeable contraction during the first two months of 2019, which, together with bi-lateral inflows, helped ease pressures on SBP’s foreign exchange reserves. These developments on the external front have improved stability in the financial markets, reduced uncertainty and improved businesses confidence, as reflected in various surveys.

“Nonetheless, despite narrowing, the current account deficit remains high, fiscal consolidation is slower than anticipated, and core inflation continues to rise.

“Average headline CPI inflation reached 6.5 percent in Jul-Feb FY19 compared to 3.8 percent recorded in the same period last year. Meanwhile, YoY CPI inflation has risen considerably to 7.2 percent in January 2019 and further to 8.2 percent in February 2019 - the highest YoY increase in inflation since June 2014.

“Owing to stabilization measures, the current account deficit narrowed to US$ 8.8 billion in Jul-Feb FY19 compared to a deficit of US$ 11.4 billion during the same period last year- a fall of 22.6 percent.

“Taking into account the above developments and the evolving macroeconomic situation, the MPC noted that sustainable growth and overall macroeconomic stability requires further policy measures as: (i) underlying inflationary pressures continue; (ii) the fiscal deficit is elevated, and (iii) despite an improvement, the current account deficit is still high.

“In this backdrop and after detailed deliberations, the MPC decided to increase the policy rate by 50 bps to 10.75 percent effective from 1st April 2019”, read the press release.