KARACHI: The State Bank of Pakistan (SBP) on Monday announced an increase of 150 basis points in the benchmark policy rate, taking it to 13.75 per cent to “maintain the balance between inflation and economic growth”.
“This action, together with much needed fiscal consolidation, should help moderate demand to more sustainable pace while keeping inflation expectations anchored & containing risks to external stability,” the SBP’s Monetary Policy Committee (MPC) said in a statement.
1/3 At today’s meeting, MPC decided to raise policy rate by 150bps to 13.75%. This action, together with much needed fiscal consolidation, should help moderate demand to more sustainable pace while keeping inflation expectations anchored & containing risks to external stability.
— SBP (@StateBank_Pak) May 23, 2022
In the statement, it said that in its last meeting on April 7, provisional estimates suggest that growth in FY22 has been much stronger than expected. “Meanwhile, external pressures remain elevated and the inflation outlook has deteriorated due to both home-grown and international factors,” it added.
The statement further stated, “Domestically, an expansionary fiscal stance this year, exacerbated by the recent energy subsidy package, has fueled demand and lingering policy uncertainty has compounded pressures on the exchange rate.”
Meanwhile, it noted that globally, inflation has intensified due to the Russia-Ukraine conflict and renewed supply disruptions caused by the new Covid-19 wave in China. “As a result, almost all central banks across the world are suddenly confronting multi-year high inflation and a challenging outlook,” the statement added.
The MPC also emphasised the urgency of strong and equitable fiscal consolidation to complement today’s monetary tightening actions. “This would help alleviate pressures on inflation, market rates and the external account,” it added.
This is a developing story
