Monatery policy: SBP hikes interest rate to 12.25%

KARACHI: (HRNW) In a surprise move, the State Bank of Pakistan (SBP) on Thursday raised its benchmark interest rate by a significant 250 basis points to 12.25% as the country grapples with uncertainty around the outlook for international commodity prices and global financial conditions, which had been exacerbated by the Russia-Ukraine conflict.

The central banks believe that this action would help to safeguard external and price stability.

At its last meeting on March 8, the Monetary Policy Committee (MPC) had noted that it “was prepared to meet earlier than the next scheduled MPC meeting on April 19, if necessary, to make any needed timely and calibrated action to safeguard external and price stability.”

In line with its forward guidance, the meeting took place 12 days in advance. The State Bank of Pakistan Monetary Policy Committee was scheduled to meet on April 19, 2022 to decide the interest rate.

The recent hike comes after the rupee plunged to an all-time low of Rs188.18 against the US dollar in the inter-bank market.

According to a statement issued by the central bank; the inflation out-turn in March surprised on the upside, with core inflation in both urban and rural areas also rising significantly.

“While timely demand-moderating measures and strong exports and remittances saw the February current account deficit shrink to $0.5 billion, its lowest level this fiscal year, heightened domestic political uncertainty contributed to a 5% depreciation in the rupee and a sharp rise in domestic secondary market yields as well as Pakistan’s Eurobond yields and CDS spreads since the last MPC meeting,” the statement read.