Monetary policy: SBP keeps interest rate unchanged at 9.75%

By Muhammad JuniadPublished On 06 Jan 2023

KARACHI: In line with market expectations, the State Bank of Pakistan (SBP) on Monday maintained the status quo and left the benchmark interest rate unchanged at 9.75%% for the next two months.

Financial pundits had anticipated no change in the policy rate as the SBP strongly hinted in monetary policy statements for December 2021 that it might maintain the rate at the current level of 9.75% to analyze the effects of the tightening we have already done.

This was the first monetary policy committee (MPC) meeting of the calendar year 2022. According to traditional practice, the central bank revises its monetary policy rate up or down or keeps it unchanged over the inflation reading and economic activities.

For example, low inflation mainly leads to a reduction in the monetary policy rate to ramp up economic activities and vice versa. Meanwhile, the rate is left unchanged at a higher level to tame inflation or on the lower side to support economic growth.

The SBP had increased the key policy rate by a cumulative 275 basis points from September to December 2021 to 9.75% to control the rising inflation and narrow the widening current account deficit, while economic activities remain healthy.

It is pertinent to mention here that an interest rate is a tool available with the central bank to control inflation, do away with the unnecessary rupee movement and give a direction to the national economy.