KARACHI – The State Bank of Pakistan (SBP) on Thursday increased the benchmark interest rate by a significant 300 basis points (bps), taking it to 20% as Pakistan is desperate to unlock the International Monetary Fund (IMF) deal.
“At its meeting held on 2nd March 2023, the Monetary Policy Committee (MPC) decided to increase the policy rate by 300 basis points to 20 percent,” it said.The MPC statement said that in today’s meeting, the committee noted that the recent fiscal adjustments and exchange rate depreciation have led to a significant deterioration in the near term inflation outlook and a further upward drift in inflation expectations, as reflected in the latest wave of surveys.
“During the last meeting in January, the Committee had highlighted near-term risks to the inflation outlook from external and fiscal adjustments. Most of these risks have materialised and are partially reflected in the inflation outturns for February. The national CPI inflation has surged to 31.5 percent y/y, while core inflation rose to 17.1 percent in urban and 21.5 percent in rural basket in February 2023.“The Committee expects inflation to rise further in the next few months as the impact of these adjustments unfolds before it begins to fall, albeit at a gradual pace,” it added.
Pakistani rupee plunged drastically to approach an all-time low against the US dollar during the opening hours of the trading session on Thursday.During the intra-day trading, the rupee was being quoted at 283, a decrease of Rs14.89, against the greenback.The recent development comes on the heels of further monetary tightening to control inflation at the central bank’s emergency Monetary Policy Committee meeting which is due today.