Central bank increases policy rate by 100 bps to 11.5pc

The State Bank of Pakistan (SBP) on Monday raised its key policy rate to 11.5 per cent.

In its meeting today, the Monetary Policy Committee (MPC) “decided to raise the policy rate by 100 basis points to 11.50pc” with effect from Tuesday, the SBP said in a statement.

It added that a detailed monetary policy statement will be released later.

The hike is the first in almost three years, as rising oil prices from the US-Israel war on Iran threatened to push inflation higher in the import-dependent nation.

The decision was in line with market expectations that the interest rate was bound to see a rise in today’s announcement.

While there was consensus among most researchers, bankers and other stakeholders that the interest rate would rise, opinions had been divided over the size of the hike.

A higher interest rate will yield more money for exporters and remitters but create serious problems for importers. It will also increase the debt burden of the government, which borrows heavily from banks and corporates to accumulate liquidity needed to run the government.

“The risks in the Gulf war are unseen and so uncertain that nobody can claim that the economy of Pakistan and other countries like it would remain in the same shape as it is now,” a financial expert........

© Dawn Business