State Bank of Pakistan Announced an Unexpectedly High Policy Rate: Bloomberg

The decision by the State Bank of Pakistan (SBP) to raise its benchmark interest rate by 150 basis points to 8.75 percent has been labeled “more than expected” by Bloomberg.

The publication said that all 41 analysts it surveyed expected an increase, however, the biggest increase predicted by analysts was 100 basis points. It said that the unexpected hike in interest rate is aimed at arresting increasing inflation and stemming the rupee’s slide.

SBP had slashed the benchmark interest rate by 625 basis points from March to June 2020 to 7% to counter the economic slowdown caused by the coronavirus pandemic.

In its monetary policy statement, the central bank said, “The MPC (Monetary Policy Committee) was of the view that there is now a need to proceed faster to normalize monetary policy to counter inflationary pressures and preserve stability with growth.”

“Looking ahead, the MPC reiterated that the end goal of mildly positive real interest rates remains unchanged, and given today’s move, expects to take measured steps to that end,” the statement added.

Bloomberg also noted that “the central bank has already taken multiple steps in recent months to ease domestic demand, including restricting consumer financing and raising cash reserve requirements for banks to absorb excess liquidity from the system.”

It is pertinent to mention here that SBP had brought forward the MPC meeting from the previously announced date of Nov 26 citing “recent unforeseen developments.”

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