Business & Finance

SBP raises key policy rate by 100bps to 22% after ‘emergency meeting’

  • Cites upward revisions in taxes, duties and PDL in FY24 budget and lifting of import restrictions as factors that slightly deteriorate inflation outlook
Published June 26, 2023

The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) on Monday raised the key policy rate by 100 basis points (bps) to 22% after convening an emergency meeting, a development that comes two weeks after it held a regular huddle to keep the interest rate on hold.

In a press release, the central bank said that after its meeting on June 12, two important domestic developments have taken place “that have slightly deteriorated inflation outlook and which could potentially increase pressure on the already stressed external account”.

“First, there are certain upward revisions in taxes, duties and PDL rate in FY24 budget as approved by the National Assembly on June 25.”

Second, the SBP, on June 23, withdrew its general guidance for commercial banks on prioritization of imports, it said.

“While the MPC views these measures as necessary in the context of completion of the ongoing IMF programme, they have increased the upside risks to the inflation outlook,” the SBP said.

“The Committee views that additional tax measures are likely to contribute to inflation both directly and indirectly, while the relaxation in imports may exert pressures in the foreign exchange market,” it said. “The latter may result in higher-than-earlier anticipated exchange rate pass-through to domestic prices.”

With this background, the MPC convened an emergency meeting to respond to these developments.

“The MPC decided to raise the policy rate by 100 bps to 22 percent, effective June 27, 2023,” it added.

“The MPC views this action as necessary to keep real interest rate firmly in the positive territory on a forward-looking basis.”

This would help further anchor inflation expectations – which are already moderating over the last few months, and support bringing down inflation towards the medium term target of 5 – 7 percent by the end of FY25, barring any unforeseen developments, read the statement.

“The MPC views that today’s decision - along with the expected completion of the ongoing IMF program and the government adhering to the target of generating a primary surplus in FY24 would help in addressing external sector vulnerabilities and reduce economic uncertainty.”

Comments

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Fazeel Siddiqui (Overseas Pakistani) Jun 26, 2023 05:46pm
Last minutes adjustments are risky, I still feel Govt will fail to obtain trench but will get only dry appreciation from IMF in the end.
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AmirSh. Jun 26, 2023 06:37pm
22% interest hike will, for sure hurt economic growth and also increase rate of un-employment in the country. Good move or bad move. Time will tell that. An achievement for our Financial Czar-Ishaq Dar!
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KU Jun 26, 2023 06:41pm
How is this raise going to benefit any industry or other sectors of the economy, and for how long? Every sane action is expected to produce an outcome, what is the perceived outcome of this action? It is like using a nuclear bomb to eradicate pests from your house, instead of using pesticides.
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Fahd Jun 26, 2023 07:25pm
Interest is un-Islamic. They should be working to reduce it to zero like Turkey.
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wanker Jun 27, 2023 12:28am
@Fahd, Turkey has raised interest rates too. Interest is a beautiful thing that you must learn to appreciate.
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bonce richard Jun 27, 2023 02:06am
@AmirSh., Excellent more corruption is on the way. Our army and honest politicians will ruin the country very soon.
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PrasadDeccani Jun 27, 2023 04:21am
22% is way too high. It may even backfire. Looks like SBP is competing with credit card loan interest rates !!
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