SBP hikes interest rate by 150 bps to 8.75%

KARACHI: The State Bank of Pakistan (SBP) on Friday increased its benchmark policy rate  by 150 basis points due to risks related to inflation.

According to a statement issued by the central bank, it has decided to increase the interest rate to 8.75%.

Earlier, the central bank had brought forward its monetary policy review meeting in light of “recent unforeseen developments that have affected the outlook for inflation and the balance of payments.”

"With risks rotating from growth to inflation and the current account faster than expected, there is now a need to proceed faster to normalise monetary policy to counter inflation and preserve stability with growth," the statement said, adding that today’s rate increase is a material move in this direction.

In its forward guidance, the central bank said: "Looking ahead, the MPC re-iterated 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 monetary policy committee at the central bank tightened interest rates keeping in view rising inflationary pressure due to rupee depreciation, a potential increase in utility tariffs and an upward trend in prices of petroleum products and essential food items in global markets.

In its previous policy review, the central bank had increased the benchmark policy rate by 25 bps to 7.25%. Accordingly, the real interest rate (inflation reading subtracted from the benchmark interest rate) was recorded at negative 2%, as the inflation reading came in at 9.2% in October.