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The State Bank of Pakistan on Monday increased the interest rate by one per cent to 17 per cent in order to check ‘inflationary pressures’.

The Monetary Policy Committee (MPC) took the decision during its meeting and the central bank governor made the announcement during a media briefing.

“The committee noted that inflationary pressures are persisting and continue to be broad-based. If these remain unchecked, they could feed into higher inflation expectations over a longer-than-anticipated period. The MPC stressed that it is critical to anchor inflation expectations and achieve the objective of price stability to support sustainable growth in the future,” said the statement.

“On balance, the committee reiterated its November 2022 assessment that the short-term costs of bringing down inflation are lower than the long-term costs of allowing it to become entrenched.”

“The MPC also emphasised on the engagements with the multilateral and bilateral partners to overcome domestic uncertainty and to address the near-term external sector challenges,” the statement added.

The central bank was expected to jack up its key policy rate by 100 basis points (bps) to 17% ahead of the revival of International Monetary Fund (IMF) loan programme.

The government has shown its willingness to take all the pre-requisite measures to win back the stalled lending programme. The required steps include increase in electricity and gas tariffs, rise in rates of taxes including the petroleum development levy and 17% sales tax on petroleum products, as well as more depreciation of the rupee against the US dollar.

The government is likely to implement the IMF programme in February, which will pave the way for the release of next loan tranche.

 

 



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