SBP raises policy rate to 16pc

The State Bank of Pakistan’s Monetary Policy Committee (MPC) raised the benchmark interest rate by 100 basis points to 16% on Friday,

In a statement following the meeting, the central bank stated that this decision reflects the MPC’s opinion that inflationary pressures have proven to be higher and more persistent than anticipated.

The MPC stated that its decision is intended to prevent excessive inflation from becoming entrenched and to control threats to financial stability, thereby clearing the path for greater growth on a more sustainable footing.

The SBP stated that, notwithstanding the continuous slowing in the economy, supply shocks both domestically and globally are increasingly responsible for inflation.

The statement continued, “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 statement said, the rise in cost-push inflation cannot be ignored and requires a monetary policy response.

The MPC also pointed out that the immediate costs of fighting inflation are less than the long-term costs of letting it persist. In the meantime, reducing food inflation through administrative steps to clear supply-chain snags and any required imports continues to be a top focus.

The central bank raised the rate to 16% by a total of 900 basis points in a period of 15 months, from September 2021 to November 2022.

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