State Bank raises interest rate by 100bps to 22%

KARACHI: The State Bank of Pakistan’s Monetary Policy Committee (MPC) on Monday increased the key policy rate by 100 basis points (bps) to 22% after convening an emergency meeting.

The announcement came after a meeting of the bank’s Monetary Policy Committee (MPC).

According to the SBP, the MPC explained that the potential upside risks to the inflation outlook had increased from its last meeting on June 12.

1/3 MPC of #SBP convened an emergency meeting today, where it noted that potential upside risks to the inflation outlook have increased from the last meeting, and accordingly decided to raise the policy rate by 100bps to 22%.https://t.co/unuS6xmJHz#SBPMonetaryPolicy pic.twitter.com/FWenKLqdkt

— SBP (@StateBank_Pak) June 26, 2023

“MPC views that these risks are mainly coming from the implementation of new measures in the fiscal and external sectors, which are important in the context of completion of the ongoing IMF (International Monetary Fund) programme.

“MPC noted that today’s action is necessary to keep the real interest rate firmly in positive territory on a forward-looking basis that would help in bringing down inflation towards the medium-term target of five to seven per cent by the end of fiscal year 25,” the SBP said.

3/3 MPC noted that today’s action is necessary to keep the real interest rate firmly in positive territory on a forward-looking basis that would help in bringing down inflation towards the medium term target of 5 – 7 percent by the end of FY25.

— SBP (@StateBank_Pak) June 26, 2023

This would help further anchor inflation expectations – which are already moderating over the last few months, and support bringing down inflation towards the medium term target of 5 – 7 percent by the end of FY25, barring any unforeseen developments, read the statement.

“The MPC views that today’s decision – along with the expected completion of the ongoing IMF program and the government adhering to the target of generating a primary surplus in FY24 would help in addressing external sector vulnerabilities and reduce economic uncertainty.”