One of the main reasons behind the State Bank of Pakistan increasing interest rate is the soaring inflation in the country stated the acting SBP governor, Dr. Murtaza Syed. Consumer costs have risen in recent months and Pakistan needs to cool its economy, the governor noted that inflation hit a two-year high of 13.4% in April. The central bank increased its interest rate by 150 basis points to 13.75%, which it said should “keep inflation expectations anchored”.
The Hike in Interest Rate Will Bring Stability to Pakistan’s Economy
“The economy could do with some cooling and this decision yesterday was a step in that direction,” stated Murtaza Syed on Tuesday. “Unlike many other emerging markets, Pakistan actually had a very shallow recession after Covid [began]. The economy contracted by only 1% — quite a good outcome compared to what happened globally. And since then, the last few years, we’ve actually seen very strong growth.”
SBP is Working to Tighten the Policy Following the Vigorous Rebound After Covid
In addition to this, Pakistan’s GDP was 5.7% last year, he said. In comparison, Asia’s GDP for 2021 was 6.5%, according to the International Monetary Fund (IMF). The central bank took on a matching tone in its financial policy statement Monday, stating that the economy’s “sustained and vigorous rebound” after the initial Covid shock has meant policy tightening is required to oppose elevated inflation. The country’s headline inflation of 13.4% in April was pushed mostly by fresh food items and a rise in core inflation, the central bank said.