The State Bank of Pakistan left the benchmark interest rate unchanged at 9.75% for the next one and half month on Tuesday.
The market had expected status quo in the interest rate after the State Bank of Pakistan (SBP) strongly hinted at status quo in the policy rate in future (in March and onwards) in its monetary policy announcement in January 2022.
At that time, the rate was enough to gradually tame inflation reading that clocked in at 13% in January 2022 and to support economic growth target of around 4.5% in the current fiscal year. If rate hike would be necessary, it would be gradual and moderate, the SBP said.
Despite monetary tightening, the State Bank of Pakistan (SBP) estimates that the inflation reading and current account deficit would remain high in the current fiscal year compared to its previous projections.
Accordingly, it revised up its estimates for inflation to 9-11% in December 2021 for full fiscal year compared to earlier projection of 7-9%. It also revised up the estimate for the current account deficit to 4% of GDP (gross domestic product) for the fiscal year against 2-3% of GDP anticipated earlier.
Owing to the lockdown imposed to contain the spread of Covid-19 in the country in March 2020, the SBP had aggressively slashed the benchmark interest rate by 625 basis points from March to June 2020 to 7%. However, the central bank raised it to 9.75% during September-December 2021 to control rising inflation and narrow down the widening current account deficit.
