More than Expected Demand led to Increase in Interest Rates: Baqir

September 23, 2021

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Dr. Reza Baqir, Governor of the State Bank of Pakistan, said the Monetary Policy Committee (MPC) decided its time to start reducing the monetary stimulus as demand in Pakistan grew faster than expected and the government seemed to be in control of the delta variant of the coronavirus.

Speaking to foreign Media Channel, Baqir said the committee decided it was time to begin the process of reducing the large monetary stimulus that the central bank has adopted against Covid-19.

“Compared to the previous meeting two months ago, MPC had two new data available- firstly, demand growth was higher than expected. For example, imports rose 85% year on year in August.

The central bank governor said that another highlight at the meeting was that in the past, the MPC was concerned about how the delta variable would affect the Pakistani economy. “However, at this meeting of the MPC, it was considered that the government was able to control the fallout of Delta Variant, and therefore risk to the economy was limited.”

Accordingly, the MPC felt that Pakistan’s ongoing economic recovery is at a “more mature stage” and therefore more attention needs to be paid to ensuring the proper mix of policies, including a gradual reduction in monetary adjustment needed to protect long-term growth, maintain inflationary expectations, and also ensure economic recovery. As a result, the current account deficit began to grow at a steady level. “