Monetary policy: SBP jacks up interest rate to 20pc

KARACHI: The State Bank of Pakistan (SBP) on Thursday raised the monetary policy rate by 300 basis points to 20per cent.

“This decision reflects deterioration in inflation outlook & its expectations amid recent external and fiscal adjustments. MPC believes this outlook warrants a strong policy response to anchor inflation expectations around the medium-term target of 5-7 percent,” the statement said.

1/3 The Monetary Policy Committee decided to raise the policy rate by 300 basis points to 20 percent in its meeting today. https://t.co/8ceKtaFu3j pic.twitter.com/OZA85p0Ewx

— SBP (@StateBank_Pak) March 2, 2023

“MPC noted that reduction in CAD is important but requires concerted efforts to improve the external situation. It emphasized that any significant fiscal slippage would undermine monetary policy effectiveness in the context of achieving the price stability objective,” the SBP added.

Pakistan is undertaking key measures to unlock the critical $1.1 billion funding from the International Monetary Fund (IMF).

IMF new conditions

The International Monetary Fund (IMF) has asked Pakistan to implement demands before reaching a staff-level agreement for the revival $7 billion Extended Fund Facility (EFF) stalled for months.

Pakistan and International Monetary Fund (IMF) are expected to make progress on the revival of the loan programme as their virtual talks for staff-level agreement would be held on March 2.

Sources further claimed that Islamabad was continuously receiving new Memorandum of Economic and Financial Policies (MEFP), while further demands were being tabled by amending the clauses of agreement.

The IMF has tabled four more conditions before reaching a staff level agreement, sources claimed, adding that the government was forced to implement surcharge of Rs3.82 on electricity permanently instead of four months.

Meanwhile, the lender also demanded to increase interest rate ahead of staff level agreement. In this regard, the State Bank of Pakistan (SBP) preponed its Monetary Policy Committee on March 2 — two weeks earlier than scheduled.

The lender insisted that the country’s interest rate should be in line with inflation – a demanded which has been agreed by the incumbent government.