The SBP linked the rates on EFS and LTFF loans to the policy rate and increased the borrowing rates for the both to 10 percent, but continued to incentivize exports by presently offering a discount of 500 basis points relative to the policy rate
By Staff Reporter
KARACHI: The State Bank of Pakistan (SBP) on Thursday raised borrowing costs by 125 basis points to quell Asia’s second-fastest inflation and meet conditions for a loan from the International Monetary Fund (IMF).
The central bank lifted the key policy rate to 15 percent. The interest rates have been increased 525 basis points, or 5.25 percentage points, since the start of this year.
The SBP’s acting central bank governor Murtaza Syed announcement the rate hike at a virtual press conference followed a meeting of the Monetary Policy Committee, days after inflation in Pakistan surged to a 13-year high in June.
In addition, a Monetary Policy Statement published by the Monetary Policy Committee of the SBP linked the rates on EFS and LTFF loans to the policy rate and increased the borrowing rates for the both to 10 percent, but continued to incentivize exports by presently offering a discount of 500 basis points relative to the policy rate.
“This combined action continues the monetary tightening underway since last September, which is aimed at ensuring a soft landing of the economy amid an exceptionally challenging and uncertain global environment,” the central bank said in a statement. “It should help cool economic activity, prevent a de-anchoring of inflation expectations and provide support to rupee in the wake of multi-year high inflation and record imports.”
The hike aims “to moderate domestic demand, prevent a compounding of inflationary pressures and reduce risks to external stability”.
Inflation, due in part to pent-up demand, high global commodity prices and rising imports, surged to a 13-year high of 21.32 percent in June.
Inflation during current fiscal year is forecast at around 18-20 percent before declining sharply in the next fiscal and the economy is predicted to grow at 3-4 percent.
“Going forward, the SBP will be closely monitoring month-on-month numbers and trying to keep second-round effects of inflation contained.”
The central bank expects the current account deficit FY2023 can narrow to 3 percent of GDP with additional measures like early closure of markets, reduced electricity used by residential and commercial customers and greater adoption of work from home.
The Monetary Policy Statement may be read in its entirety below.
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