Karachi: The State Bank of Pakistan raised its benchmark policy rate by 100 basis points on Friday (November 25), bringing it to a two-decade high of 16%, news sources reported.
The decision was made during the monthly Monetary Policy Committee (MPC) meeting, which was presided over by the SBP Governor. The meeting also raised its forecast for average inflation to 21-23% for the current fiscal year 2023, up from 18-20% previously.
In a statement issued by MPC on Twitter, it announced that ‘This [rate hike] decision is aimed at ensuring that elevated inflation does not become entrenched and that risks to financial stability are contained, thus paving the way for higher growth on a more sustainable basis.’
The SBP MPC has reduced the annual growth rate to 2% in light of the country’s devastating flood, which has damaged industrial and agricultural production. Additionally, the report noted that rising international fuel prices as a result of the Russia-Ukraine issue had slowed development even more.
It is important to remember that the market previously forecast that the policy rate would be maintained to boost growth; nevertheless, the change in key policy rates is likely to slow the economy even more. Previously, the central bank had a 16% interest rate in July 1998 and kept it there until February 1999.