The State Bank of Pakistan (SBP) on Friday decided to raise its policy rate by 150 basis points (bps) to 8.75 per cent.
The central bank had earlier rescheduled its Monetary Policy Committee (MPC) meeting which was to be held on a later date in light of “recent unforeseen developments that have affected the outlook for inflation and the balance of payments.”
“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 statement said, adding that today’s rate increase is a material move in this direction.
“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 statement added.
It may be recalled that in its previous policy review, the central bank had increased the benchmark policy rate by 25 bps to 7.25pc.
Furthermore, the SBP has also decided to increase the frequency of monetary policy reviews from six to eight times a year in an effort to make the process of monetary policy formulation more predictable and transparent in line with international best practices.
Accordingly, the monetary policy meetings ahead would be held on December 14, and then January 24, March 8, April 19, and June 10 in 2022.
The advance calendar for the next half-year of MPC meetings will be shared at the time of the June 2022 MPC meeting.
Meanwhile, Pakistan Muslim League-Nawaz (PMLN) leader and former finance minister Miftah Ismail while reacting to the development termed the increase in interest rates catastrophic for the country’s economy.
According to a report by The Express Tribune, Miftah said the rising interest rates will only reduce industrial production and increase inconsequential government spending.
“One and a half per cent rise in interest ratee will not have any impact on inflation, instead the private sector will face more difficulties and would slowdown, he said. Increasing it from 7 to 9 per cent would further increase the government’s interest payments by Rs400 billion annually,” the PML-N leader added.
“The PTI government had tried to control inflation and depreciation of the rupee with similar measures in the past but because of that the economy fell further into recession,” he maintained.
He questioned how inflation could be brought control by raising interest rates at such a fast pac? and claimed that the current account deficit (CAD) is set to reach an all-time high of $15 billion in October.
“It is virtually impossible to stop further devaluation of the rupee, especially when imports of $75 billion are inevitable,” he said.
