On Monday, the State Bank of Pakistan (SBP) announced its decision to raise the benchmark policy interest rate by 150 basis points (bps) to 13.75% for the next six weeks to hold the balance between inflation and financial growth. The central bank thinks that this “effective action” was necessary to anchor inflation expectations and maintain external stability. “This action, together with much needed fiscal consolidation, should help moderate demand to a more sustainable pace while keeping inflation expectations anchored and containing risks to external stability,” the central bank said in its monetary policy statement (MPS).
1/3 At today’s meeting, MPC decided to raise policy rate by 150bps to 13.75%. This action, together with much needed fiscal consolidation, should help moderate demand to more sustainable pace while keeping inflation expectations anchored & containing risks to external stability.
— SBP (@StateBank_Pak) May 23, 2022
MPC Also Hosted a Meeting to Take Decisions Concerning the Interest Rate
Furthermore, the Monetary Policy Committee (MPC) also met for the first time under the supervision of acting governor Dr. Murtaza Syed to make decisions concerning the key benchmark interest rate. Indicating the next Monetary Policy Committee (MPC) conference scheduled to be hosted on July 7.
To which SBP has stated, “Going forward, to strengthen monetary policy transmission, the interest rate will be linked to the policy rate and will adjust automatically, while continuing to remain below the policy rate in order to incentivize exports. The MPC will continue to carefully monitor developments affecting medium-term prospects for inflation, financial stability, and growth,” it assured.
Worldwide Inflation Has Intensified Due to Russia-Ukraine Conflict
Moreover, worldwide inflation has intensified due to the Russia-Ukraine dispute and renewed supply disturbances caused by the new COVID wave in China. Therefore, the SBP reported that almost all central banks across the world are unexpectedly confronting multi-year high inflation and a difficult outlook.
“The MPC’s baseline outlook assumes continued engagement with the IMF, as well as reversal of fuel and electricity subsidies together with normalization of the petroleum development levy (PDL) and GST taxes on fuel during FY23,” the statement read. The SBP highlighted that under these deductions, headline inflation is likely to increase temporarily and may remain raised throughout the next fiscal year.
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