Karachi: The State Bank of Pakistan (SBP) has raised its benchmark interest rate by 300 basis points to 20%, the highest level in three decades, the news sources reported on March 2.
The interest rate is the highest since 1996 during the height of the financial crunch. The SBP announced the interest rate change after its rescheduled Monetary Policy Committee (MPC) meeting on Thursday. In a series of tweets by the central bank, it stated that as inflation continues to soar, the readjustment of the interest rate is aimed at anchoring inflation expectations around the medium-term target of 5-7%.
The decision comes after the bank warned of ‘near-term risks’ to inflation from recent fiscal and external adjustments including payments of outstanding loan payments and reduced remittances and export. The national CPI inflation has surged to 31.5% year-on-year, while core inflation rose to 17.1% in urban and 21.5% in a rural basket in February 2023.
The bank also noted that scheduled debt repayments and a decline in financial inflows amid rising global interest rates and domestic uncertainties continued to pressurize the forex reserves and the exchange rate. The MPC warned that it expects inflation to rise further in the next few months before beginning to fall at a gradual pace. It is important to note that interest rate has been hiked in the backdrop of the 9th International Monetary Fund (IMF) review under Extended Fund Facility (EFF). The fund has asked the country to readjust its fiscal targets and reduce subsidies on energy, imports and non-development budget to adjust for the fiscal stability measures.
Nauman Ahmad is an imaginative Pisces whose love for literature and nature is unparalleled. When he's not reading or hiking, he's sleeping and eating, which gives him plenty of energy for his next adventure.
