SBP jacks up interest rate to 21pc

KARACHI: The State Bank of Pakistan (SBP) on Tuesday raised the monetary policy rate by 100 basis points to 21per cent — the highest level since October 1996.

“MPC views today’s decision, along with the cumulative monetary tightening so far, as adequate to anchor inflation expectations around its medium-term target – barring any unanticipated shock,” stated the SBP.

“MPC noted that there are initial signs of plateauing of inflation expectations, albeit at elevated levels.”

2/4 Headline inflation rose further in Mar23 as was noted in last MPS. MPC noted that there are initial signs of plateauing of inflation expectations, albeit at elevated levels.

— SBP (@StateBank_Pak) April 4, 2023

The press release further said that the committee had noted three important developments that had implications on the macroeconomic outlook.

“First, the current account deficit has narrowed considerably, more than previously anticipated, mainly on the back of sizable import containment. Nonetheless, the overall balance of payments position continues to remain under stress, with foreign exchange reserves still at low levels,” the press release said.

“Second, significant progress has been made towards completion of the ninth review under the International Monetary Fund’s (IMF) Extended Fund Facility (EFF) programme.

“Third, recent strains in the global banking system have led to further tightening of global liquidity and financial conditions. These have added to the difficulties of the emerging market economies like Pakistan to access international capital markets,” the statement said.

On March 2, the State Bank of Pakistan (SBP) raised the monetary policy rate by 300 basis points to 20per cent.

Pakistan is undertaking key measures to unlock the stalled IMF loan program. The staff-level agreement between the International Monetary Funds (IMF) and Pakistan was scheduled to take place on February 9.