[vc_row][vc_column][vc_column_text dp_text_size=”size-4″]On Tuesday, Pakistan’s central bank raised its benchmark policy rate by 100 basis points to a new record high of 21%, in line with market forecasts, as the bank took steps to contain increasing inflation in the country.
“MPC (monetary policy committee) regards today’s decision, coupled with the cumulative monetary tightening so far, as appropriate to anchor inflation expectations around its medium-term objective – barring any unanticipated shock,” the State Bank of Pakistan (SBP) said on its official Twitter handle.
1/4 Monetary Policy Committee decided to increase policy rate by 100bps to 21% in its meeting today.https://t.co/JeUhdtDFrq pic.twitter.com/6avIFg4S6c
— SBP (@StateBank_Pak) April 4, 2023
In March 2023, the inflation rate reached a six-decade high of 35.4%. According to experts, it will peak in the region of 37% to 40% in April or May 2023.
The market believes that the central bank raised interest rates in response to the IMF’s suggestion to restart its $6.5 billion loan programme.
Also Read: Pakistan’s Economic growth expected to slow in FY23
In its monetary policy statement, the central bank also stated that, despite a significant reduction in the current account deficit in recent months, external account vulnerabilities persist “amid low foreign exchange reserves, ongoing debt repayments, and recent tightening in global financial conditions.”
The committee observed three significant developments since the last MPC meeting in March that have implications for the macroeconomic outlook. First, the current account deficit has shrunk significantly more than expected, owing mostly to significant import restraint. “Yet, the overall balance of payments position remains stressed, with foreign exchange reserves remaining at low levels.”
Second, significant progress has been made towards the completion of the IMF’s EFF (extended fund facility) programme’s ninth review.
Also Read: Pakistani rupee hits record low to Rs288 against US Dollar
Third, recent strains in the global banking system have led to further tightening of global liquidity and financial conditions. “These have added to the difficulties of the emerging market economies like Pakistan to access international capital markets.”
The MPC considers the current monetary policy stance appropriate and stresses that today’s decision, along with previous accumulated monetary tightening, will help achieve the medium-term inflation target over the next 8 quarters. “However, the committee noted that uncertainties attached with the global financial conditions as well as the domestic political situation, pose risks to this assessment.”
In February 2023, the current account saw a deficit of only $74 million and the cumulative deficit now stands at $3.9 billion in Jul-Feb FY23, about 68 percent lower than the same period last year.[/vc_column_text][/vc_column][/vc_row]
