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KARACHI: In line with market expectations, the State Bank of Pakistan (SBP) today (Tuesday) maintained the status quo and left the benchmark interest rate unchanged at seven percent for the next two months.
“MPC of SBP maintained policy rate at 7pc,” the central bank said in a statement, adding that the current stance of the monetary policy was appropriate to support economic recovery, maintain financial stability and keep inflation expectations “well-anchored”.
The SBP kept the interest rate unchanged to support businesses during the Covid-19 pandemic. More importantly, the country is currently witnessing a fourth wave of the pandemic as the infection ratio has jumped to 23-24% in the port city of Karachi. Other big cities in Punjab are facing a similar situation.
Addressing a press conference along with SBP officials, Governor Reza Baqir said that this was the fifth consecutive time that the central bank has decided to maintain the policy rate.
He said that the policy rate is lower than the inflation rate. “Economic experts term this a negative interest rate,” he said, adding, “The reason for keeping the real interest rate negative is a focus on growth.” He added that Pakistan’s current account deficit is the lowest it has been in the last 10 years.
Earlier, due to the lockdown imposed to contain the spread of Covid-19 in the country, the SBP had aggressively slashed the benchmark interest rate by 625 basis points from March to June 2020 to 7%.
The SBP announces a target rate every two months, which serves as the benchmark for overnight funds in the interbank market. The policy rate is revised up or down or kept unchanged in relation to the inflation reading and economic activities. Low inflation leads to a reduction in the policy rate in a bid to ramp up economic activities and vice versa.
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