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SBP raises policy rate by 125bps to 15pc

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Move to control spiralling inflation

The State Bank of Pakistan announced on Thursday that it had increased the interest rate by 125 basis points (bps) to 15 per cent.

In a press conference after the monetary policy committee met to decide on the policy rate, the central bank’s Acting Governor Dr Murtaza Syed said the “most important” objective behind the move was to control spiralling inflation.

He attributed the rise in inflation to global reasons, such as the Russia-Ukraine war, and domestic developments, including a “very high economic growth”.

Syed said that while a high economic growth rate was usually a good development, Pakistan’s economy was structured in a way that it would start facing problems if the rate was six per cent for two years in a row.

Inflation had risen because of fiscal expansion, he added. “The environment is very complex and uncertain. We have seen this kind of inflation globally after 50-60 years.”

The acting governor, however, expressed the hope that the country would get past the phase of high inflation in the same way that it had been successful in combatting the coronavirus pandemic.

Syed said that inflation would remain between 18 to 20pc in the current fiscal year, however, the SBP would try to make sure that it did not rise beyond 20pc.

If the SBP had not raised the benchmark policy rate, it could have led to a worse situation — hyperinflation and more pressure on the currency, he said.

The central bank acting chief said economic “The inflation number will remain high but we will try that it does not increase. We will try to control month-on-month [inflation] but the year-on-year [inflation] will unfortunately remain between 18 to 20pc.” He emphasised the need to control food prices. “While the monetary policy cannot control this, the agricultural output can be increased and bottlenecks in supply distribution can be addressed.”

 

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