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SBP raises key interest rate by 100bps, takes it to 17% — a 25-year high

  • Governor SBP Jameel Ahmad announces decision at press briefing following the meeting
Published January 23, 2023

In line with market expectations, the Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) announced an interest rate hike of 100 basis points, taking it to 17%. This is the highest level of the key policy rate since October 1997.

Governor SBP Jameel Ahmad conveyed the monetary policy decision at a press conference following the meeting.

“The rationale behind the rate rate hike was that inflationary pressure persists,” said Ahmad.

“Secondly, challenges pertaining to the current account deficit remain as there is a delay over expected inflows. This has added pressure on our foreign exchange reserves,” he said.

In its previous policy meeting in November last year, the central bank had pushed the rate by 100 basis points to 16%. It has now raised rates by a total of 725 bps since January 2022.

A majority of market experts had predicted a rate hike by 100 basis points to 17%, as the country struggles to rein in persistently high inflation.

MPC statement

A handout on the MPC meeting said that the committee noted that inflationary pressures are persisting and continue to be broad-based.

“If these remain unchecked, they could feed into higher inflation expectations over a longer than-anticipated period,” stated the MPC, stressing that it is critical to anchor inflation expectations and achieve the objective of price stability to support sustainable growth in the future.

Global economic and financial conditions broadly remain uncertain in the near-to-short term, leading to mixed implications for the domestic economy: MPC statement

“Despite some moderation in November and December, inflation continues to remain elevated. Importantly, core inflation has been on a rising trend for the past 10 months. Moreover, the recent pulse surveys show inching up of consumers and business inflation expectations.

“Second, near-term challenges for the external sector have increased despite the policy-induced contraction in the current account deficit. The lack of fresh financial inflows and ongoing debt repayments have led to a continuous drawdown in official reserves.

“Third, the global economic and financial conditions broadly remain uncertain in the near-to-short term, leading to mixed implications for the domestic economy. The expected slowdown in global demand could negatively impact the outlook of exports and workers’ remittances for emerging economies, including Pakistan. This would partly offset the gains from the import contraction. On the flip side, some moderation in the international commodity prices may help reduce inflation, and the improvement in global financial conditions may also provide some relief on the external sector.”

The MPC added that the “short-term costs of bringing down inflation are lower than the long-term costs of allowing it to become entrenched”.


Since the MPC meeting held in November, a number of key economic developments on the domestic front have taken place.

The Consumer Price Index (CPI)-based inflation clocked in at 24.5% in December on year-on-year basis.

On a month-on-month basis, it increased to 0.5% in December 2022 as compared to an increase of 0.8% in the previous month, showed data released by the Pakistan Bureau of Statistics.

Meanwhile, the Sensitive Price Indicator-based inflation for the week ended January 19 was recorded at 220.54 points against 220.53 points registered in the previous week. However, a major increase was observed in the prices of food items.

Pakistan’s current account deficit declined sharply 60% during the first half of this fiscal year (FY23) mainly due to a lower import bill.

The current account recorded a deficit of $ 3.67 billion during July-Dec of FY23 compared to $9.09 billion in the same period of last fiscal year (FY22), depicting a decline of $5.42 billion.

Economists said that the federal government’s measures to curtail the rising import have put a positive impact on the country’s external account and the current account is continually presenting an improved picture.

Moreover, foreign exchange reserves held by the SBP rose by $258 million to $4.6 billion as of January 13, 2023, latest data showed.

Despite the slight gain, current reserves are not enough to cover even one month of imports and the disbursement of IMF funds has been delayed on account of Pakistan’s struggle to implement some key prior conditions.

In the period between November and January, the currency has been trading in a range between Rs224 and 230 against the US dollar.

Economic experts and markets have expressed concern over the government’s inability – and inaction – to resume the IMF’s ninth review, as it remains indecisive over fulfilling the lender’s pre-requisites, such as additional revenue commitments, an increase in PDL and GST on petroleum products, and a hike in electricity and gas tariff.


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