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The central bank of Pakistan increased its benchmark rate by 100 basis points to 22%, according to a statement.
SBP raises key policy rate: The State Bank of Pakistan reported that the MPC (Monetary Policy Committee) had an emergency meeting today and decided to hike the policy rate by 100 basis points to 22% as a result of the potential upside risks to the inflation outlook having grown since the last meeting.
The meeting took place the day after the nation passed a drastically altered yearly budget in an attempt to secure a last-ditch bailout from an expiring IMF program.
The MPC believed that these risks were primarily related to the adoption of new fiscal and external sector policies, which were crucial to the successful conclusion of the ongoing IMF programme.
The bank reported that its monetary policy committee had taken note of “two important domestic developments since the last meeting that have slightly deteriorated inflation outlook and which could potentially increase pressure on the already stressed external account.”
These changes include certain increases in taxes, tariffs, and the petroleum levy rate in the recently adopted FY24 budget, as well as the central bank’s decision to withdraw its general advice for commercial banks on how to prioritise imports on June 23.
The committee believed that, barring any unexpected developments, the decision would support bringing inflation down towards the medium-term target of five to seven percent by the end of FY25 and further anchor inflation expectations, which have already been moderating over the past few months.
The MPC believes that today’s decision, when combined with the anticipated conclusion of the present IMF programme and the government’s adherence to the aim of creating a primary surplus in FY24, would assist alleviate external sector risks and lessen economic uncertainty.