SBP’s key interest rate remain same amid economic challenges

The State Bank of Pakistan (SBP) decided to maintain the key interest rate at 22%, a historic level, in its fourth consecutive meeting on Tuesday, as reported by a news source on December 13.

The decision reflects the bank’s expectation of a substantial decrease in inflation in the latter part of the fiscal year. Despite a surge in November’s inflation numbers, most independent economists and analysts had anticipated that the central bank would hold the current interest rate steady. The Monetary Policy Committee (MPC) acknowledged the impact of the previous month’s increase in gas prices.

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Previously, on June 26, the SBP had raised the policy key interest rate to 22% in an unscheduled meeting as a final step to secure a USD 3 billion bailout from the International Monetary Fund (IMF) under an economic reform program aimed at stabilizing the economy.

The Pakistani economy has been wrestling with persistently high inflation, with monthly consumer price index-based inflation staying above 20% since June 2022, reaching a record 38% in May of the current year. Despite assurances from both the SBP and the IMF about an anticipated decrease in inflation this financial year, November saw inflation at 29.2% after the government increased energy prices to meet reform targets.

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The Central Bank stressed that the current monetary policy stance is considered suitable to reach the inflation target of 5% to 7% by the conclusion of the fiscal year 2024-25. Furthermore, the SBP forecasted a modest recovery in real GDP for the ongoing fiscal year, with first-quarter estimates indicating a year-on-year growth of 2.1%, compared to 1% a year earlier.

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