SBP increases the interest rate by 150 bps to 8.75%

KARACHI: The State Bank of Pakistan (SBP) on Friday declared an upsurge of 150 basis points in its policy rate to hold rising inflation, which intimidates to undermine the economy of Pakistan.

The SBP stated that the conclusion to escalate the interest rate to 8.75% is taken due to dangers linked to inflation.

According to the statement by SBP, “With risks rotating from growth to inflation and the current account faster than expected, there is now a need to proceed faster to normalise monetary policy to counter inflation and preserve stability with growth”.

The central bank said: “Looking ahead, the MPC re-iterated that the end goal of mildly positive real interest rates remains unchanged, and given today’s move, expects to take measured steps to that end.”

The monetary policy committee at the central bank constricted interest rates keeping in view the pressure due to rupee devaluation, which has lead to a possible upsurge in utility prices.

Whereas, Interest rates are used by the central bank as a measure to regulate inflation, control avoidable actions in currency rates and give direction to the national economy.

The real interest rate (inflation reading deducted from the benchmark interest rate) was documented at negative 2%, as inflation was at 9.2% in October.

Inflation in Pakistan has augmented with the continuation of economic activities but as supply-side inflation has diminished, demand-side inflation has passed. The inflation originally continued stumpy averaging at 8.7% during 4MFY22, but now, even with the base effect fading, it has increase speed, which is raising distresses.