Central Bank Raises Policy Rate to 7.25 PC

KARACHI: In a surprising move here on Monday the State Bank of Pakistan raised
its policy rate by 25 basis points from 7pc to 7.25pc curb what they termed as an
increasing inflationary pressure and mounting current account deficit. The tightening
of Monitory policy came in the sight for the first time since June last year. The policy
rate KEPT stagnant for 15 months to cope with the situation arising in the coronavirus
crisis.
The policy rate in the country was around 13 percent until in March last year it had to
be reduced time and again to adjust with the Pandemic scenario until it was finally
reached as low as 7 percent in June last year. The governor SBP is of the view that the
economy is regaining momentum and there is an increase in the imports which results
in a growing pressure on exchange rate and the current account. He said the central
bank has decided to adjust exchange rate along with using tools like interest rate to
keep the current account sustainable.
The central bank also believes that economic recovery is now less vulnerable to
coronavirus related uncertainty, therefore, a reasonable and sustainable monitory
policy is desperately needed to take the economic growth to the mounts of
affluence.“As a result, at this more mature stage of 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.“the statement elaborated.
The central bank is hopeful that the current shift in the monetary policy stance
will be supportive of economic growth with real interest rate as low as below
zero. Experts however believe that the increase in policy rate would affect the
private investment and there is every chance that the economic growth will be
adversely affected by this policy decision.