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SBP raises interest rate to 12.25pc in unexpected move

Central bank declares deteriorated outlook and rise in risks to external stability as factor for increased inflation

The State Bank of Pakistan has raised the interest rate by 250 basis points to 12.25 percent saying that the inflation outlook had worsened and external stability risks have risen.

The State Bank of Pakistan Monetary Policy Committee was set to meet on April 19, 2022 to decide the interest rate but met 12 days earlier today.

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In a statement, the MPC said that “futures markets suggest that global commodity prices, including oil, are likely to remain elevated for longer and the Federal Reserve is likely to increase interest rates more quickly than previously anticipated, likely leading to a sharper tightening of global financial conditions.”

It added that the inflation out-turn on the domestic front in March surprised on the upside, with core inflation in both urban and rural areas also rising significantly.

Political uncertainty in the country led to a five percent depreciation in the rupee and a sharp increase in domestic secondary market yields since the last MPC meeting.

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Due to these developments, average inflation forecasts have been revised upwards to slightly above 11 percent in Financial Year 2022 before moderating in Financial Year 2023. The current account deficit is still expected to be around four percent of GDP in Financial Year 2022.

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