Monetary policy: SBP keeps interest rate unchanged at 9.75%

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In line with market expectations, the State Bank of Pakistan (SBP) on Monday maintained the status quo and left the benchmark interest rate unchanged at 9.75%% for the next two months to lower inflation and keep the ongoing economic recovery sustainable.

“In reaching its decision, the monetary policy committee (MPC) considered key trends and prospects in the real, external and fiscal sectors, and the resulting outlook for monetary conditions and inflation,” the central bank said after the meeting.

The central bank added that looking ahead, and against the backdrop of the developments that have improved the inflation outlook, the MPC was of the view that current real interest rates on a forward-looking basis are appropriate to guide inflation to the medium-term range of 5-7%, support growth, and maintain external stability.

Hinting towards the next MPC meeting scheduled to be held on March 8, the central bank said: “The MPC will continue to carefully monitor developments affecting medium-term prospects for inflation, financial stability, and growth.”

“If future data outturns require a fine-tuning of monetary policy settings, the MPC expected that any change would be relatively modest,” it said.

Financial pundits had anticipated no change in the policy rate as the SBP strongly hinted in monetary policy statements for December 2021 that it might maintain the rate at the current level of 9.75% to analyse the effects of the tightening we have already done.

This was the first MPC meeting of the calendar year 2022. According to traditional practice, the central bank revises its monetary policy rate up or down or keeps it unchanged over the inflation reading and economic activities.

For example, low inflation mainly leads to a reduction in the monetary policy rate to ramp up economic activities and vice versa. Meanwhile, the rate is left unchanged at a higher level to tame inflation or on the lower side to support economic growth.

The SBP had increased the key policy rate by a cumulative 275 basis points from September to December 2021 to 9.75% to control the rising inflation and narrow the widening current account deficit, while economic activities remain healthy.

It is pertinent to mention here that an interest rate is a tool available with the central bank to control inflation, do away with the unnecessary rupee movement and give a direction to the national economy.


Author: desi123 is an online news portal that aims to provide the latest trendy news for Asians living in Asia and around the World.

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