SBP hikes rates by 50 basis points to 6.5 percent

ISLAMABAD: State Bank of Pakistan on Friday hiked rates by 50 basis points to 6.5 percent, amid growing concerns about a widening current account deficit and rising oil prices.

"Since the last meeting, in MPC’s assessment, the balance of risks to the sustainability of the healthy-growth-low-inflation nexus have shifted," State Bank of Pakistan said in a statement, referring to its rate-setting Monetary Policy Committee.

The rate increase was largely expected by economists.

The central bank highlighted Pakistan´s "twin deficits" problem, with the fiscal deficit expected to hit 5.5 percent, far above the government target of 4.1 percent.

In the first 10 months of the current fiscal year (July-June), the current account deficit soared to $14 billion, about 1.5 times bigger than during the same period last year.

"The balance of payments picture, despite an increase in exports and some deceleration in imports, has further deteriorated, due to a sharp increase in international oil prices and limited financial inflows to date," the bank added.

The bank said inflation, which averaged 3.8 percent in the first ten months of the year, would rise "marginally above the annual target of 6 percent" next fiscal year.

However, SBP added that the future trajectory would also depend on the direction of oil prices.