Monetary policy: State Bank of Pakistan raises interest rate to 16%

05:18 PM | 25 Nov, 2022
Monetary policy: State Bank of Pakistan raises interest rate to 16%
Source: File Photo

KARACHI – The State Bank of Pakistan (SBP) Friday increased the policy rate by 100 basis points to 16 percent to counter inflationary pressures and ensure that growth remains sustainable.

“This decision reflects the MPC’s view that inflationary pressures have proven to be stronger and more persistent than expected,” the central bank said in a statement.

The move aimed at ensuring that elevated inflation does not become entrenched and that risks to financial stability are contained, thus paving the way for higher growth on a more sustainable basis, it said.

Amid the on-going economic slowdown, inflation is increasingly being driven by persistent global and domestic supply shocks that are raising costs.

“In turn, these shocks are spilling over into broader prices and wages, which could de-anchor inflation expectations and undermine medium-term growth. As a result, the rise in cost-push inflation cannot be overlooked and necessitates a monetary policy response.”

The MPC noted that the short-term costs of bringing inflation down are lower than the long-term costs of allowing it to become entrenched.

At the same time, curbing food inflation through administrative measures to resolve supply-chain bottlenecks and any necessary imports remains a high priority.  

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