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As it announced the monetary policy on Friday, the State Bank of Pakistan (SBP) raised the interest rate by 150 basis points, increasing it to 8.75%.
In spite of market expectations for a rate hike, several analysts believe the central bank will now be more aggressive in its efforts to curb a bulging current account deficit and rupee depreciation.
MPC said since its last meeting, risks related to inflation and the balance of payments have risen while growth prospects have continued to brighten.
It stated that disruptions to supply chains caused by Covid and higher energy prices are proving to be larger and longer-lasting than previously anticipated around the world.
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High import prices have also pushed Pakistan’s CPI, SPI, and core inflation higher than expected.
According to the SBP, the current account deficits in September and October were larger than expected, resulting from both rising oil and commodity prices and buoyant domestic demand. The rupee has borne the brunt of adjusting to these external pressures.”
Because of these developments, the balance of risks has shifted away from growth and toward inflation and the current account faster than expected.
The MPC concluded that there is a need to normalize monetary policy more quickly to counter inflationary pressures and maintain growth stability,” according to the statement, adding that the recent rate hike is a material step in this direction.
