SBP leaves interest rate unchanged at 15%

Central bank maintains rate after previous hikes of a cumulative 800 basis points in past 11 months

KARACHI:

In line with experts’ anticipation, the State Bank of Pakistan (SBP) announced on Monday to leave its key interest rate unchanged at 15 per cent for the next seven weeks.

The bank maintained the rate after previous hikes of a cumulative 800 basis points in the past 11 months and achieved the set target of slowing down economic activities in the country.

The sales of cars, petroleum products, electricity, cement, and fertilizers dropped significantly over the past few months.

The economy had overheated amid the second highest current account deficit of $17.4 billion recorded in the previous fiscal year that ended on June 30, 2022 and the weekly inflation had hit a record high of over 42% as the week ended on Friday and the benchmark CPI inflation spiked to a 14-year high at around 25% in July.

The current account deficit is expected to be moderate or slightly in surplus for the month of July.

Read The deadly inflation

The inflation reading is, however, anticipated to jump in the current month of August beyond the 14-year high recorded at around 25 per cent in July.

The inflation rate is a tool available to the bank to create a balance between inflation reading and economic growth. With the heightened concerns over supply, the rate is expected to jump over 25% in August, which the central bank cannot control with another hike in its key policy rate.

As Pakistan continues to reel through political and economic instability, inflation is consistently on the rise with the Sensitive Price Index (SPI) showing an increase of 3.35 per cent in the week that ended on August 18.

Shattering old records, the year-on-year increase went up to 42.31 per cent. The previous highest-ever yearly increase was recorded in the week ending on August 5 at 38.63 per cent.

Financial experts had developed a consensus that the bank will maintain the rate at the current level of 15% for the next seven weeks.

Commercial banks had, however, expected that the SBP monetary policy committee (MPC) will increase the rate – probably by 100 basis points. The inflation is anticipated to increase further amid a continuous increase in energy prices in the country, while the policy rate is a tool available with the central bank to control inflation.