KARACHI: In its meeting held on September 20, 2021 here, the Monetary Policy Committee (MPC) decided to raise the policy rate by 25 basis points to 7.25 percent.
A statement issued by the State Bank of Pakistan ( SBP) on Monday said since its last meeting in July this year, the MPC noted that the pace of the economic recovery has exceeded expectations. 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 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.
In line with this shift in the economic outlook, the MPC was of the view that the priority of monetary policy also needed to gradually pivot from catalyzing the recovery after the Covid shock toward sustaining it.
As foreshadowed in previous monetary policy statements, the MPC noted that this rebalancing would be best achieved by gradually tapering the significant monetary stimulus provided over the last 18 months. The MPC noted that over the last few months the burden of adjusting to the rising current account deficit had fallen primarily on the exchange rate and it was appropriate for other adjustment tools, including interest rates, to also play their due role.
Pakistan Muslim League Nawaz (PMLN) president , Mian Shahbaz Sharif, strongly opposed the SBP monetary policy and said the increase in interest rate was like a suicidal attack on the national economy. He said the increase in interest rate will have extremely damaging affect on the economy that will roll back growth rate. Shahbaz Sharif demanded of the government to reconsider its decision of increasing interest rate.
Commenting on SBP decision to reverse the interest rate , Sustainable Development Policy Institute (SDPI) , Executive Director , Dr Abid Suleri , said The increase in basic points is a phenominal factor and it would serve to reduce pressure on the Rupee and at the same time help government cut down imports. He added the rupee is right now under pressure for Afghan factor and he thinks the increase in interest rate will play a rescue role for it.
