Karachi: Monetary Policy Committee (MPC) of State Bank of Pakistan (SBP) raised key policy rate by 100 basis points, taking it to 21 percent.”At its meeting, MPC decided to increase policy rate by 100 basis points to 21 percent,” it said in statement. “MPC noted that inflation in March 2023 rose further to 35.4 percent and is expected to remain high in near term. “However, there are early indications of inflation expectations plateauing, albeit at an elevated level. MPC views today’s decision as an important step towards anchoring inflation expectations around medium-term target, which is critical for achieving objective of price stability. Committee further observed that Pakistan’s financial sector remains broadly resilient, while economic activity continues to moderate.” Committee said it has noted three important developments having implications for macroeconomic outlook.

“First, current account deficit has narrowed considerably, more than previously anticipated, mainly on back of sizable import containment. Nonetheless, overall balance of payments position continues to remain under stress, with foreign exchange reserves still at low levels.

“Second, significant progress has been made towards completion of 9th review under IMF’s EFF programme. “Third, recent strains in global banking system have led to further tightening of global liquidity and financial conditions. These have added to difficulties of emerging market economies like Pakistan to access international capital markets.”

It, however, noted that uncertainties attached with global financial conditions as well as domestic political situation, pose risks to this assessment. Analysts anticipated central bank to raise its key interest rate by 200 basis points as it struggles to tame inflation.

Published in The Daily National Courier, April, 05 2023

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