KARACHI: The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) on Friday hiked the key policy rate by 100 basis points to 16 percent, the highest since 1999.
The central bank said in a statement after the meeting that the decision reflected the MPC’s view that inflationary pressures have proved stronger and more persistent than expected.
1/3 At today’s meeting, the Monetary Policy Committee (MPC) decided to raise the policy rate by 100 basis points to 16%. https://t.co/E4scWh3Eeo
— SBP (@StateBank_Pak) November 25, 2022
“The objective of this decision is to ensure that inflation does not rise and risks to financial stability remain, thereby paving the way for higher growth on a more sustainable basis,” the MPC said.
The State Bank noted that amid the ongoing economic slowdown, inflation continues to rise with global and domestic supply shocks pushing up costs.
“As a result, these shocks are spilling over into broader prices and wages, which could lower inflation expectations and weaken medium-term growth,” the statement said. That the resulting increase in cost-push inflation cannot be ignored and is needed. The response to monetary policy
The MPC added that the short-term costs of bringing down inflation are lower than the long-term costs of allowing it to strengthen. Meanwhile, curbing food inflation through supply chain bottlenecks and administrative measures to remove any necessary imports remains a high priority.
The central bank hiked the rate by a total of 900 basis points to 16% over 15 months (September 2021 to November 2022).
The MPC, since the last meeting, noted three important country developments, including:
- Inflation rose sharply in October, with food prices rising significantly and core inflation rising further.
- A sharp decline in imports led to a significant narrowing of the current account deficit in both September and October
- After including post-flood post-disaster needs estimates, the FY23 growth estimate is around 2 percent and the current account deficit around 3 percent of GDP.
However, the committee noted that higher food prices and core inflation are now expected to push FY23 average inflation to 21-23 percent.
3/3 After incorporating the Post-Disaster Needs Assessment of the floods and latest developments, the FY23 projections for growth of around 2% and a current account deficit of around 3% of GDP shared in the last monetary policy statement are re-affirmed.
— SBP (@StateBank_Pak) November 25, 2022
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