SBP raises policy rate by 50bps to 12% amid rising inflation risks

IKARACHI: The State Bank of Pakistan (SBP) on Monday raised its key policy rate by 50 basis points to 12% as higher energy prices amid geopolitical tensions increased inflation risks.

SBP Governor Jameel Ahmad announced the decision at a press conference in Karachi following a meeting of the central bank’s Monetary Policy Committee (MPC).

The increase, which takes the policy rate up from 11.5%, marks the central bank’s first rate hike since June.

“Geopolitical conditions have led to an increase in energy prices,” Ahmad said, adding that petroleum product prices had remained above $100.

He said the MPC reviewed the prevailing conditions before deciding to increase the policy rate by 50 basis points.

According to the governor, nine of the MPC’s 10 members voted in favour of raising the interest rate.

Ahmad said conditions had deteriorated compared with the committee’s September meeting, while expectations for inflation and the current account deficit had also increased somewhat.

Wheat prices had also risen, he added.

Growth projected at 3.5%-4.5%

Turning to the broader economy, the SBP governor said economic growth was expected to remain between 3.5% and 4.5% during the current fiscal year.

He said exports were not at the level required, although there had been an improvement.

The central bank expects exports to reach $32.5 billion during the fiscal year, while imports are projected at $71 billion, according to Ahmad.

Workers’ remittances, meanwhile, are expected to reach $45 billion, the governor said.