Pakistan hikes interest rate to 17%, highest since Oct 1997

In line with market expectations, the State Bank of Pakistan (SBP) on Monday jacked up the benchmark interest rate by 100 basis points to 17 per cent — the highest since October 1997, reports said.

SBP Governor Jameel Ahmad, in his maiden monetary policy press conference after assuming charge in August, revealed that the committee has observed that “inflationary pressures are persisting and continue to be broad-based”, Geo News reported.

“If these remain unchecked, they could feed into higher inflation expectations over a longer than-anticipated period, therefore the Monetary Policy Committee (MPC) stressed that it is critical to anchor inflation expectations and achieve the objective of price stability to support sustainable growth in the future,” he added.

The central bank raised the benchmark interest rate by 100 basis points (bps), taking the total increase to 1,000 bps since September 2021 to counter rising inflation, Geo News reported.

The Governor said that despite some moderation in November and December, inflation continues to remain elevated. Importantly, core inflation has been on a rising trend for the past 10 months.

Moreover, near-term challenges for the external sector have increased despite the policy-induced contraction in the current account deficit. “The lack of fresh financial inflows and ongoing debt repayments have led to a continuous drawdown in official reserves,” he said.

The MPC also took notice of the global economic and financial conditions broadly remaining uncertain in the near-to-short term, leading to mixed implications for the domestic economy.

The central bank, in its monetary policy statement, further elaborated that the expected slowdown in global demand could negatively impact the outlook of exports and workers’ remittances for emerging economies, including Pakistan, Geo News reported.

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