- Action on the fiscal side by the government would decide future course
KARACHI: The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) on Monday raised the key interest rate by 150 basis points, taking it to 13.75% — the highest interest-rate level since 2011 when it stood at 14%.
The hike comes as the country faces a myriad of economic challenges including falling foreign exchange reserves, plummeting currency, current account deficit, and expectations of higher inflation in coming months.
Read about the monetary policy announcement here: SBP raises key interest rate by 150 basis points, takes it to 13.75%
Fahad Rauf, Head of Research at Ismail Iqbal Securities, said the rate-hike is likely to support the Pakistani rupee.
“No measures from the fiscal side are being taken, which has pushed the SBP to take action,” Rauf told Business Recorder, adding that the policy rate would have no impact on the KIBOR rate, which is already above 15%, or on Pakistan equities.
“Action on the fiscal side by the government would decide the future course,” he said.
Rauf further said that the rate-hike would also help in slowing down an "overheated economy by reducing demand”.
Expressing his views on the policy rate hike, Samiullah Tariq, Head of Research at Pak-Kuwait Investment Company Limited, said that he expects pressure on inflation to remain.
"Inflation would reach its peak in June-July, and then subside," he told Business Recorder.
Tariq added that the policy rate increase would help curtail rupee deprecation. "However, the rupee's fall has more to do with revival of the International Monetary Fund (IMF) programme."
Saad Khan, Head of Research at IGI Securities, said the latest hike is inadequate.
“The policy rate hike would neither arrest the ongoing depreciation of the rupee, nor would it be able to control inflation,” he said.