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ISLAMABAD: The State Bank of Pakistan (SBP) on Monday announced its monetary policy, increasing its benchmark interest rate by 25 basis points (bps) to 7.25 percent, effective from September 21.
The central bank said the decision to increase the interest rate was taken at a meeting of the central board of directors of the State Bank held under the chairmanship of Governor Dr Reza Baqir in a bid to control soaring inflation.
MPC of #SBP decided to raise the policy rate by 25bps to 7.25%. See the statement at https://t.co/l51tMR5BqA
— SBP (@StateBank_Pak) September 20, 2021
The interest rate rise caught analysts off guard, many of whom were expecting the central bank to leave the rate unchanged. In its previous policy review on July 27, the central bank had kept the policy rate unchanged at 7% for the sixth time in a row.
The SBP had aggressively slashed the benchmark interest rate by 625 basis points to 7% from March to June 2020 to minimise the impacts of COVID-19 on the economy. Since then, the SBP has maintained a status quo.
The monetary policy is an effective tool with the central bank that is used to curb inflation. The SBP announces a target rate every two months, which serves as the benchmark for overnight funds in the interbank market.