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Monetary policy: SBP raises key interest rate by 150 basis points, takes it to 8.75%

  • Also announces revised schedule of upcoming MPC meetings
  • Next announcement to be made on December 14, says central bank
Published November 19, 2021

The State Bank of Pakistan (SBP) has hiked the interest rate by 150 basis points, taking it to 8.75% as it announced the monetary policy on Friday.

While the market expected a rate-hike, several analysts believed the push by the central bank would now be more aggressive as it looks to curtail a burgeoning current account deficit and rupee depreciation.

The central bank's MPC said that since the last meeting, risks related to inflation and the balance of payments have increased while the outlook for growth has continued to improve.

It added that across the world, price pressures from Covid-induced disruptions to supply chains and higher energy prices are proving to be larger and longer-lasting than previously anticipated.

“In Pakistan too, high import prices have contributed to higher-than-expected CPI, SPI, and core inflation outturns.

"At the same time, there are also emerging signs of demand-side pressures on inflation and inflation expectations of businesses have risen on account of further upside risks from domestic administered prices."

The SBP said that the current account deficits in September and October have been larger than anticipated, “reflecting both rising oil and commodity prices and buoyant domestic demand. The burden of adjusting to these external pressures has largely fallen on the rupee.”

The MPC noted that due to the said developments, the balance of risks has shifted away from growth and toward inflation and the current account faster than expected.

“Accordingly, the MPC was of the view that there is now a need to proceed faster to normalise monetary policy to counter inflationary pressures and preserve stability with growth,” read the statement, adding that the latest rate hike is a material move in this direction.

SBP increases number of MPC meetings

In a separate announcement, the SBP also increased the number of MPC meetings from six to eight times a year "in line with international best practices".

"In continuation of efforts to make the process of monetary policy formulation more predictable and transparent in line with international best practices, the State Bank of Pakistan (SBP) has decided to increase the frequency of monetary policy reviews from six to eight times a year.

"This action will bring the frequency of meetings in line with that in comparable emerging markets. It will also help to enhance the predictability of monetary policy actions," said the SBP.

The schedule for the next five MPC meetings is as follows:

1. December MPC meeting: Tuesday, 14th Dec 2021

2. January MPC meeting: Monday, 24th Jan 2022

3. March MPC meeting: Tuesday, 8th Mar 2022

4. April MPC meeting: Tuesday, 19th Apr 2022

5. June MPC meeting: Friday, 10th Jun 2022


Earlier, the meeting, which was originally expected to be the last of this calendar year, was brought forward by the SBP “in light of recent unforeseen developments that have affected the outlook for inflation and the balance of payments, and to help reduce the uncertainty about monetary settings prevailing in the market".

Several analysts expected the central bank to hike interest rates more aggressively than it did in September, when the benchmark policy rate was increased by 25 basis points to 7.25%.

First hike in over 2 years: SBP raises key interest rate by 25 basis points

Today's MPC meeting was supposed to be held on November 26, 2021, but it was preponed by the central bank.

The revision in schedule came as the country battles several issues on the external front, such as rupee depreciation, rising inflation and uncertainty over the stalled International Monetary Fund (IMF) programme.

SBP prepones monetary policy announcement, will now hold it on November 19

“With international commodity prices remaining downward sticky, the cost-push pressures will continue to remain significant," said AKD Securities in a report recently. "This is in addition to a weakening rupee and a likely revision in utility tariffs that may likely push inflation in double digits in coming months,” it said.


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