SBP increases policy rate by 25 basis points to 7.25% for next two months

KARACHI (92 News) – The State Bank of Pakistan (SBP) has increased the policy rate by 25 basis points to 7.25 percent for the next two months.

The decision was made during a meeting of the Monetary Policy Committee (MPC) on Monday.

Announcing the monetary policy, the MPC observed that this robust recovery in domestic demand, coupled with higher international commodity prices, is leading to a strong pick-up in imports and a rise in the current account deficit.

While year-on-year inflation has declined since June, rising demand pressures together with higher imported inflation could begin to manifest in inflation readings later in the fiscal year.

With growing signs that the latest COVID wave in Pakistan remains contained, continued progress in vaccination, and overall deft management of the pandemic by the government, the economic recovery now appears less vulnerable to pandemic-related uncertainty. As a result, at this more mature stage of the recovery, a greater emphasis is needed on ensuring the appropriate policy mix to protect the longevity of growth, keep inflation expectations anchored, and slow the growth in the current account deficit.

"With a supportive FY22 budget and accommodative monetary policy, most high-frequency domestic demand indicators such as automobiles, POL (petroleum, oil and lubricants) sales, cement sales and electricity generation continue to depict robust growth. This growth is mirrored in the strength of imports and tax collections," the MPC observed.