SBP raises policy rate to 17pc to ‘arrest inflation’

ISLAMABAD           –          The State Bank of Pakistan has increased the interest rate by one per cent to 17 per cent in order to check ‘inflationary pressures’ on the national economy. SBP Governor Jameel Ahmad announced this during a media briefing here yesterday that the Monetary Policy Committee (MPC) had decided to increase the interest rate by one per cent to 17pc.

“The committee noted that inflationary pressures are persisting and continue to be broad-based. If these remain unchecked, they could feed into higher inflation expectations over a longer-than-anticipated period. The MPC stressed that it is critical to anchor inflation expectations and achieve the objective of price stability to support sustainable growth in the future,” said a statement separately issued by the SBP. “On balance, the committee reiterated its November 2022 assessment that the short-term costs of bringing down inflation are lower than the long-term costs of allowing it to become entrenched.” The SBP chief noted the central bank had previously predicted that the current account deficit would clock in at $10 billion this year.

“Our actual performance during the first six months is better than expected. Despite a slowdown in exports and remittances, our current account deficit during July-Dec stood at $3.7 billion. “This means we are within our target. We now predict that we may be able to bring down the current account deficit below $9 billion.” Terming it a good development, Ahmad said it would reduce the country’s external financing requirements to an extent. The SBP governor also gave a breakdown of the country’s financing requirements. He recalled that in a Dec 8 podcast, he had said financing requirements for FY23 stood at $33 billion. Of these, the current account deficit stood at $10 billion, followed by loan repayments, both bilateral and multilateral, at $23 billion.

“Of the $23 billion loan repayments, we have already paid back $15 billion. We have repaid huge loans from January to July, of which $9 billion have been paid and $6 billion have been rolled over. These rollovers are already confirmed. “We have to repay $8 billion in the remaining five months of the current fiscal year. Of this, we have an understanding of $3 billion being rolled over under a bilateral facility with a country. We expect a bilateral commercial loan of $2.2 billion to go from our accounts and be returned,” he said without elaborating.

This left $3 billion to be repaid over the next five months, Ahmad said. “This is the debt analysis. Our net outflow will be less than $3 billion. We have paid $1.8 billion in interest already and will pay a little over $1.1 billion in the remaining five months which will become a part of the current account deficit.”

Responding to a question, the SBP governor iterated the exchange rate was market-based and fluctuations happened within market parameters. The pressure on the rate was below normal due to administrative measures to curb imports, he added. Besides this, there was also an element of speculation, Ahmad said. “Our external financing requirements are high and there is a gap between inflows and outflows. Speculators try to encash that difference.

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