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SBP raises interest rate by 250 bps to 12.25pc

sbp raises interest rate by 250 bps to 12.25pc

The State Bank of Pakistan (SBP) on Thursday raised its benchmark interest rate by a 250 basis points to 12.25% as the country grapples with uncertainty around the outlook for international commodity prices and global financial conditions.

In line with its forward guidance, the meeting took place 12 days in advance. The State Bank of Pakistan Monetary Policy Committee was scheduled to meet on April 19, 2022 to decide the interest rate.

The recent hike comes after the rupee plunged to an all-time low of Rs188.18 against the US dollar in the inter-bank market.

According to a statement issued by the central bank; the inflation out-turn in March surprised on the upside, with core inflation in both urban and rural areas also rising significantly.

The MPC noted that the above developments necessitated a strong and proactive policy response. Accordingly, the MPC decided at its emergency meeting today, to raise the policy rate by 250 basis points to 12.25 percent.

This increases forward-looking real interest rates (defined as the policy rate less expected inflation) to mildly positive territory. The MPC was of the view that this action would help to safeguard external and price stability.

The MPC also noted that SBP is in the process of taking further actions to reduce pressures on inflation and the current account, namely an increase in the interest rate on the export refinance scheme (EFS) and widening the set of import items subject to cash margin requirements.

These items are mostly finished goods including luxury items and exclude raw materials. The announcement of these measures is expected soon and will complement the action taken by the MPC on interest rates today.

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