Pakistan's central bank raises key policy rate by 1 percent amid rising inflation

This undated file photo shows a general view of the State Bank of Pakistan premises, which is now turned into a museum. (Shutterstock)

• The State Bank of Pakistan further tightened its monetary stance after the rate of inflation reached 11.5 percent in November
• The central bank expects inflation to average nine to 11 percent this fiscal year due to the recent higher than expected outturns

KARACHI: Pakistan’s central bank on Tuesday further tightened its monetary stance by raising the key policy rate by 100 basis points to 9.75 percent amid rising inflationary pressure in the economy.
The State Bank of Pakistan (SBP) took the decision after the country’s inflation was recorded at 11.5 percent in November 2021, while core inflation in the urban and rural areas rose to 7.6 and 8.2 percent, respectively.
“At today’s meeting [on Tuesday], the Monetary Policy Committee (MPC) decided to raise the policy rate by 100 basis points to 9.75 percent,” the SBP announced in a statement issued after the policy committee meeting.
“The goal of this decision is to counter inflationary pressures and ensure that growth remains sustainable,” the statement added.
The central bank said the indicators of economic activity had remained robust since its last meeting in November while inflation and the trade deficit had further risen due to high global prices and domestic economic growth.
The SBP expects inflation to average nine to 11 percent due to recent higher than expected outturns during the ongoing fiscal year. The pick-up in inflation has been broad-based, with electricity charges, motor fuel, house rent, milk and vegetable ghee among the largest contributors.
“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,” the statement added.
As global commodity prices retrench, administered price increases dissipate, and the impact of demand-moderating policies materializes, the central bank believes inflation is likely to decline toward the medium-term target range of five to seven percent during FY23.
On the external side, despite record exports, high global commodity prices contributed to a significant increase in the import bill. As a result, the November trade deficit rose to $5 billion based on the data provided by the Pakistan Bureau of Statistics, said the SBP.
The central bank informed the MPC expected monetary policy settings to remain broadly unchanged in the near-term.
It also maintained the economic growth during the current fiscal year was expected to be close to the upper end of the forecast range of four to five percent.
“This projection factors in the expected impact of today’s interest rate decision,” the SBP said, adding: “The emergence of the new Coronavirus variant, Omicron, poses some concerns, but at this stage there is limited information about its severity.”
The bank noted that Pakistan had successfully coped with multiple waves of the virus, which supported a positive outlook for the economy.