State Bank maintains target rate at 5.75 per cent

Monetary Policy Committee has cut the target rate by 0.75% in fiscal 2015-16

KARACHI: The State Bank of Pakistan (SBP) will maintain the target rate at 5.75% over the next two months.

The central bank announced the move in a statement released on Saturday. The SBP announces a target rate every two months, which serves as the benchmark interest rate for overnight funds in the interbank market. It is one of the tools the central bank uses to ensure price stability in the economy.



Decreasing the target rate poses the risk of high inflation, but also stimulates economic growth by making credit cheaper. In contrast, raising the target rate restricts the level of liquidity, which subdues consumer prices in the economy. The central bank tries to strike a balance by targeting the overnight cost of funds at a level that promotes maximum economic growth without causing high inflation.





The Monetary Policy Committee (MPC), which is headed by the SBP governor and includes three independent economists as external members, takes the decision to revise or maintain the target rate after taking into account factors like anticipated inflation, foreign exchange reserves, commodity prices etc.

The MPC had reduced the target rate by 0.25% in its last announcement in May. Cumulatively, the MPC cut its target rate by 0.75% in fiscal 2015-16, following a decrease of 3% in fiscal 2014-15.