KARACHI – The State Bank of Pakistan increased on Friday the policy rate by 6.5% effective from May 28, citing reasons such as the increase in international oil prices, exchange rate and food inflation.
According to a statement issued by the central bank, Pakistan’s economic growth is provisionally estimated to achieve a 13-year high of 5.8 percent for the Fiscal Year 2018.
Concurrently, headline inflation remains moderate and is expected to stay well below the annual target of 6.0 percent, the statement added.
In its last meeting, the SBP had chosen to keep the interest rate unchanged at 6% stating, “The Monetary Policy Committee is of the view that some time may be allowed for the impact of recent policy developments to unfold.”
https://en.dailypakistan.com.pk/business/sbp-to-announce-fiscal-policy-for-two-months-on-friday/
The SBP announces a target rate every two months, which serves as the benchmark interest rate for overnight funds in the interbank market. It is one of the tools the central bank uses to ensure price stability in the economy.
Decreasing the target rate poses the risk of high inflation, but also stimulates economic growth by making credit cheaper. In contrast, raising the target rate restricts the level of liquidity, which subdues consumer prices in the economy. The central bank tries to strike a balance by targeting the overnight cost of funds at a level that promotes maximum economic growth without causing high inflation.
