SBP jacks up interest rate by 25 basis points to 7.25%

KARACHI: The State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) decided on Monday to jack up its policy rate by 25 basis points to 7.25 per cent.

“Since its last meeting in July, the MPC noted that the pace of the economic recovery has exceeded expectations. This robust recovery in domestic demand, coupled with higher international commodity prices, is leading to a strong pick-up in imports and a rise in the current account deficit,” read a statement issued after a meeting of the MPC.

“While year-on-year inflation has declined since June, rising demand pressures together with higher imported inflation could begin to manifest in inflation readings later in the fiscal year.

With growing signs that the latest Covid wave in Pakistan remains contained, continued progress in vaccination, and overall deft management of the pandemic by the Government, the economic recovery now appears less vulnerable to pandemic-related uncertainty.”

The committee pointed out that at this more mature stage of the recovery, a greater emphasis is needed on ensuring the appropriate policy mix to protect the longevity of growth, keep inflation expectations anchored, and slow the growth in the current account deficit.

It was of the view that the priority of the monetary policy also needed to gradually pivot from catalyzing the recovery after the Covid shock toward sustaining it.

“As foreshadowed in previous monetary policy statements, the MPC noted that this rebalancing would be best achieved by gradually tapering the significant monetary stimulus provided over the last 18 months,” the statement further said.

“The MPC noted that over the last few months the burden of adjusting to the rising current account deficit had fallen primarily on the exchange rate and it was appropriate for other adjustment tools, including interest rates, to also play their due role.”