SBP hikes policy rate by 100bps to record 21pc to rein in inflation

The State Bank of Pakistan (SBP) has decided to hike the policy rate by 100 basis points (bps) to 21 per cent, its highest-ever level, according to a press release issued on Tuesday. The announcement came after a meeting of the bank’s Monetary Policy Committee (MPC). “The MPC noted that inflation in March 2023 rose further to 35.4pc, and is expected to remain high in the near term. However, there are early indications of inflation expectations plateauing, albeit at an elevated level,” a press release issued by the central bank said. The press release said that the MPC viewed today’s decision as an “important step towards anchoring inflation expectations around the medium-term target, which is critical for achieving the objective of price stability”. The committee further observed that Pakistan’s financial sector “remains broadly resilient, while economic activity continues to moderate”. The press release said that the committee had noted three important developments that had implications on the macroeconomic outlook. “First, the current account deficit has narrowed considerably, more than previously anticipated, mainly on the back of sizable import containment. Nonetheless, the overall balance of payments position continues to remain under stress, with foreign exchange reserves still at low levels,” the press release said.