State Bank Raises Interest Rate to 8.5%

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The State Bank of Pakistan has raised the benchmark interest rate by 100 basis points to 8.5%, according to the central bank’s Monetary Policy Statement released on over the weekend.

This is the fourth time this year that SBP has raised the benchmark rate, following increases by 25 bps, 50 bps, and 100 bps in January, May, and July respectively. The benchmark rate is now a 44-month high at 8.5%.

The rate hike is in line with market expectations, though. It comes as “concerns over the economic front continue to persist on the back of rising inflation and large twin deficits,” the Monetary Policy Statement revealed, which is announced every two months.

“Inflation is inching up, particularly from March 2018 onwards. So far, in the first two months of FY19, the headline CPI inflation has averaged 5.8% as compared to 3.2% for the corresponding months of FY18,” it further said.

Meanwhile, the current account deficit remains a concern, particularly due to a notable increase in oil imports. The deficit stands at $2.7 billion for July-August 2018 – despite growth in exports and remittances – compared to $2.5 billion in the corresponding period last year.

Pakistan’s GDP growth for Fiscal Year 2019 (FY19) has been forecast at 5% by the SBP, down from an ambitious 6.2% target set by the previous government in April. The International Monetary Fund (IMF) recently projected the country’s growth rate at 5.2%, while the World Bank estimates it at 4.7%, for FY19.

Related: CDC to launch digital account opening solution to facilitate investors

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