Karachi: The State Bank of Pakistan (SBP) on Monday (May 23) increased the policy rate by 150 basis points, reaching a 13-year high of 13.75%, news sources reported. The new interest rate was announced following the depreciating rupee and higher inflation rates.
The policy rate was announced at the conclusion of the meeting held by the Monetary Policy Committee (MPC) and was described as a step in the economy’s management amid rising domestic demand and pressure on the rupee. The SBP also issued a three-page post-meeting statement outlining the rationale for the monetary policy rate adjustment and modification. A summary of the announcement was also made available on the SBP’s official Twitter account, which reads as follows:
1/3 At today’s meeting, MPC decided to raise policy rate by 150bps to 13.75%. This action, together with much needed fiscal consolidation, should help moderate demand to more sustainable pace while keeping inflation expectations anchored & containing risks to external stability.
In addition to raising the policy rate, the SBP raised interest rates on EFS (export finance scheme) and LTFF (long-term financing facility) loans, stating that they would be linked to the policy rate and would change automatically. According to the apex bank, the economy would rise at a rate of 3.5-4.5 % in the fiscal year 2023 (FY-23). It is important to mention here that the government has banned the import of all luxury items to curtail the current account deficit (CAD), which has reached 4% of GDP. The SBP has said that the CAD will reduce in FY-23 to 3%.
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