State Bank of Pakistan (SBP) in emergency meeting of its Monetary Policy Committee has decided to increase the policy rate by 250 basis points to 12.25 percent.
The monetary policy statement justified that action by citing significant uncertainty around the outlook for international commodity prices and global financial conditions, which had been exacerbated by the Russia-Ukraine conflict. Hence, MPS met earlier than the next scheduled MPC meeting in late April, to take any needed timely and calibrated action to safeguard external and price stability.
Committee also noted that heightened domestic political uncertainty contributed to a 5 percent depreciation in the rupee and a sharp rise in domestic secondary market yields as well as Pakistan’s Eurobond yields and CDS spreads since the last MPC meeting.
Furthermore, Economic situation also remains tough amid decline in the SBP’s foreign exchange reserves largely due to debt repayments and government payments pertaining to settlement of an arbitration award related to a mining project.
SBP also revised upwards Inflation forecast to above 11 percent in FY22 before moderating in FY23. SBP also expect current account deficit may remain high contingent upon Global Commodity Prices.
SBP also noted that Forward-Looking Real Interest Rates now turn mildly positive.
State Bank of Pakistan is also set to increase the interest rate on the export refinance scheme (EFS) and widening the set of import items subject to cash margin requirements.
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