In line with the market expectation, Pakistan’s central bank increased the benchmark interest rate by 100 basis points to 9.75 percent on Tuesday, to counter inflationary pressures, address the current account deficit, and ensure that growth remains sustainable.
“Given rate increases since September and the outlook, the Monetary Policy Committee felt that the end goal of mildly positive real interest rates on a forward-looking basis was now close to being achieved,” the central bank said after the meeting.
Hinting towards the next Monetary Policy Committee (MPC) meeting scheduled to be held on January 24, the State Bank of Pakistan (SBP) said that “looking ahead, monetary policy settings are expected to remain broadly unchanged in the near-term”.
The MPC met today for the first time after Pakistan reached a staff-level agreement with the International Monetary Fund (IMF) under the sixth review on November 22, 2021.
Today’s meeting was one of the two additional meetings that the central bank had scheduled last month when it jacked up its benchmark policy rate by 150 basis points to 8.75 percent, largely in line with the market expectation, because of risks related to inflation.
According to a post-meeting statement issued by the central bank: “Looking ahead, based on this momentum and the expected path of energy tariffs, inflation is likely to remain within the revised forecast range for the remainder of the fiscal year.”
“Subsequently, as global commodity prices retrench, administered price increases dissipate, and the impact of demand-moderating policies materialises, inflation is expected to decline toward the medium-term target range of 5-7 percent during FY23,” the statement said.
“The MPC will continue to carefully monitor developments affecting medium-term prospects for inflation, financial stability, and growth,” the central bank added.
Financial pundits had earlier predicted that the central bank’s monetary policy committee will raise the policy rate by 100 basis points to control soaring inflation in Pakistan.
It is pertinent to mention here that the interest rate is a tool available with the central bank to control inflation, do away with the unnecessary rupee movement and give a direction to the national economy.