The State Bank of Pakistan (SBP) on Monday raised its key policy rate to 11.5 per cent.
In its meeting today, the Monetary Policy Committee (MPC) decided to raise the policy rate by 100 basis points to 11.50 per cent, effective from Tuesday, the SBP said in a statement.
The hike is the first in almost three years, as rising oil prices from the US-Israel war against Iran threaten to push inflation higher in the import-dependent nation.
In its detailed statement, the MPC said the prolonging of the Middle East conflict has intensified risks to the macroeconomic outlook.
‘In particular, global energy prices, freight charges and insurance premiums continue to remain significantly above pre-conflict levels,’ it added.
The MPC highlighted that supply chain disruptions have contributed to the prevailing uncertainty.
‘While the incoming data has been broadly in line with the MPC’s expectations so far, the impact of these global developments will be visible in key economic indicators going forward,’ it forecasted.
Citing its assessment that inflation is likely to increase and remain above the target range in the next few quarters, the MPC deemed it necessary to maintain a tighter policy stance to keep inflation expectations anchored and contain second-round effects of the current supply shock to bring inflation within the target range.
It stressed that the move would be important to preserve macroeconomic stability, which is necessary for achieving sustainable economic growth.
A higher interest rate will yield more money for exporters and remitters but create serious problems for importers. It will also increase the government’s debt burden, which borrows heavily from banks and corporates to accumulate the liquidity needed to run the government.