State Bank fixed the Interest Rate on 7.25%

September 21, 2021

The central bank raised its benchmark interest rate by 25 basis points to 7.25 percent on Monday, kicking off a monetary tightening cycle to combat rising price pressures in the wake of the COVID-19 pandemic, and indicated that it was prepared to take additional steps to combat inflationary risk if necessary.Most market participants were surprised by the unexpected rate hike, which came as the bank’s first since mid-2020. The central bank’s policy rate has remained at 7% for the past 15 months.

In its monetary policy statement, the State Bank of Pakistan (SBP) also hinted that it might raise rates in the coming months as a stimulus to support the economy in the wake of the COVID crisis, but any future decision would be based on future demand growth and other key data. In the short term, the MPC expects monetary policy to remain accommodative in the absence of unforeseen circumstances, with possible further gradual tapering of stimulus to achieve mildly positive real interest rates over time.

12-month inflation has been steadily decreasing since June, according to the central bank, but rising demand pressures combined with higher imported inflation could start to show up in inflation readings later in the fiscal year.Inflation fell from 9.7% in June to 8.4% in July and August, compared to 9.7% in June. The path of domestic demand and administered prices, particularly fuel and electricity, as well as global commodity prices, will determine the inflation outlook in the future.

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