In pursuit of $1.11 billion in finance from the International Monetary Fund (IMF), the State Bank of Pakistan (SBP) upped the benchmark interest rate by 300 basis points (bps) to 20 percent in an off-cycle review.
The Monetary Policy Committee (MPC), a statutory committee formed under the State Bank of Pakistan Act, agreed to hike the policy rate to its highest level since October 1996.
In Today’s MPC meeting, the central bank boosted the benchmark interest rate by 300 basis points (bps), bringing the total increase since January 2022 to 1,050 bps.
In contrast to its previous projection of 21 to 23% for the year in November 2022, the State Bank of Pakistan (SBP) increased its inflation forecast to 27 to 29% for the current fiscal year in its monetary policy announcement on Thursday.
During its most recent meeting in January, the committee brought up near-term concerns from external and fiscal adjustments to the inflation outlook. Most of these threats have materialized, which is somewhat reflected in the inflation data for February.
In February 2023, the national CPI inflation jumped to 31.5 percent year-over-year, while urban core inflation rose to 17.1 percent and rural basket inflation rose to 21.5 percent.
In its meeting today, the MPC (monetary policy committee) noted that recent fiscal adjustments and exchange rate depreciation have led to a significant deterioration in the near-term inflation outlook and a further upward drift in inflation expectations, as reflected in the most recent wave of surveys.
As the consequences of these modifications become apparent in the coming months, the committee predicts that inflation will continue to climb before commencing a gradual fall.
Compared to the November 2022 prediction of 21 to 23%, “the average inflation rate for this year is now anticipated to be between 27 and 29%.”
In this context, the MPC highlighted that anchoring inflation expectations is crucial and requires a forceful policy response. Even though the current account deficit (CAD) has narrowed dramatically, vulnerabilities remain, according to the MPC, which also mentioned this issue.
In January 2023, the Canadian dollar reached its lowest level since March 2021, when it fell to $242 million.
, the State Bank of Pakistan (SBP) upped the interest rate by 300 basis points (bps) to 20 percent in an off-cycle review.){kind=link}