KARACHI – The State Bank of Pakistan (SBP) on Thursday raised its benchmark interest rate by a 250 basis points to 12.25% as the country grapples with uncertainty around the outlook for international commodity prices and global financial conditions.
In line with its forward guidance, the meeting took place 12 days in advance. The State Bank of Pakistan Monetary Policy Committee was scheduled to meet on April 19, 2022 to decide the interest rate.
The recent hike comes after the rupee plunged to an all-time low of Rs188.18 against the US dollar in the inter-bank market.
According to a statement issued by the central bank; the inflation out-turn in March surprised on the upside, with core inflation in both urban and rural areas also rising significantly.
1/3 In an emergency meeting today, MPC decided to raise policy rate by 250bps to 12.25%. This strong and proactive policy response was necessitated by a deterioration in outlook for inflation and increase in risks to external stability since last meeting. https://t.co/VSRwxRQJhY
— SBP (@StateBank_Pak) April 7, 2022
“While timely demand-moderating measures and strong exports and remittances saw the February current account deficit shrink to $0.5 billion, its lowest level this fiscal year, heightened domestic political uncertainty contributed to a 5% depreciation in the rupee and a sharp rise in domestic secondary market yields as well as Pakistan’s Eurobond yields and CDS spreads since the last MPC meeting,” the statement read.
The MPC further noted that in addition, there has been a decline in the SBP’s foreign exchange reserves “largely due to debt repayments and government payments about the settlement of an arbitration award related to a mining project.”
“Accordingly, the MPC decided at its emergency meeting today, to raise the policy rate by 250 basis points to 12.25%,” it said.
“These items are mostly finished goods including luxury items and exclude raw materials. The announcement of these measures is expected soon and will complement the action taken by the MPC on interest rates today,” the statement read.
“Looking ahead, the MPC noted that today’s decisive actions, together with a reduction in domestic political uncertainty and prudent fiscal policies, should help ensure that Pakistan’s robust economic recovery from COVID-19 remains sustainable,” the statement read.
