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SBP increases interest rate to 16 percent

SBP announces monetary policy

SBP has increased the interest rate to 16 percent!

The State Bank of Pakistan (SBP) on Friday has announced the monetary policy, increasing the policy rate by 100 basis points (1%) to 16 percent.

The decision was made during a meeting of SBP Monetary Policy Committee (MPC).

According to a press release issued by the SBP, this decision reflects the MPC’s view that inflationary pressures have proven to be stronger and more persistent than expected. It is 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.

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“Amid the ongoing 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,” it added.

“Since the last meeting, the MPC noted three key domestic developments. First, headline inflation increased sharply in October, as the previous month’s administrative cut to electricity prices was unwound. Food prices have also accelerated significantly due to crop damage from the recent floods, and core inflation has risen further. Second, a sharp decline in imports led to a significant moderation in the current account deficit in both September and October. Despite this moderation and fresh funding from the ADB, external account challenges persist. Third, after incorporating the Post-Disaster Needs Assessment of the floods and latest developments, the FY23 projections for growth of around 2 percent and a current account deficit of around 3 percent of GDP shared in the last monetary policy statement are re-affirmed. However, higher food prices and core inflation are now expected to push average FY23 inflation up to 21-23 percent,” SBP stated.

 

Saman Siddiqui

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