Business

In surprise move, State Bank hikes interest rate to 16pc

KARACHI: The State Bank of Pakistan (SBP) Friday raised its benchmark interest rate by 100 basis points (bps) to 16 percent — the highest ever since 1999 — in a bid to curb the soaring inflation.

In its last two meetings in October and September, the central bank had left the rate unchanged.

The SBP has increased the policy rate by a cumulative of 625 bps in 2022, including the latest hike. This time, the SBP has surprised the market participants and analysts by raising rates as the economy battles to recover from devastating floods.

“This decision reflects the MPC’s [Monetary Policy Committee] view that inflationary pressures have proven to be stronger and more persistent than expected,” the central bank said in a statement.

“It is aimed at ensuring that elevated inflation does not become entrenched and that risks to financial stability are contained, thus paving the way for higher growth on a more sustainable basis,” it added.

The SBP cited risks of high inflation becoming persistent due to a rise in cost-push inflation as justification for increasing the interest rates at the highest rate in 23 years, despite the fact that the economy has slowed down.

The global and domestic supply shocks are spilling over into broader prices and wages, which could de-anchor inflation expectations and undermine medium-term growth, it said.

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