State Bank of Pakistan raised the interest rate by three percentage points to 20 percent on Thursday during its Monetary Policy Committee meeting, which took place two weeks earlier than the scheduled meeting of March 16.
The announcement came at a time when consumer inflation was at 31.6 percent. The rate of inflation the country is witnessing is the rate of inflation Pakistan saw in July 1965. The Central BankÂ’s statement, it issued after the meeting, says,
“The MPC noted that the recent fiscal inflation and exchange rate depreciation have led to a significant deterioration in the near-term inflation outlook and a further upward drift in inflation expectations, as reflected in the latest wave of surveys. In this context, the MPC emphasised that anchoring inflation expectation is critical and warrants a strong policy response.”
Raising the rate of interest at a time when the economy of Pakistan is already facing a number of adverse issue seems strange. The traders and industrialists are afraid that the this step of SBP will destroy the economic activities in the country. An industrialist, Javed Bilwani says, “How it is it possible to continue with 20pc interest rate? This is impossible and is bound to prodan uce anti-growth move.
For industries, it is like ground zero. Nobody can survive with such high-interest rate and record inflation. The 20pc interest rate was the highest in Asia and much higher than in India and Bangladesh, the situation is more difficult than it seems.”
SBP says in the statement that its decision has pushed the real interest rate in “positive territory” on a forward-looking basis. It has also barred unexpected future shocks. The statement says, “ This will help anchor inflation expectations and steer inflation to the medium-term target of 5-7pc by the end of the 2024-25 fiscal year.”
The National Consumer Price Index (CPI) has surged by 31.60 c year-on-year and core inflation increased up to 17.1 percent in urban areas and 21.5 percent in rural areas in February. State Bank of Pakistan in its statement says that scheduled debt repayments and reduction in foreign remittances amid rising global interest rates and domestic uncertainties continue to exert pressure on foreign exchange reserves and exchange rate.