Central bank increases policy rate by 100 bps to 11.5pc

The State Bank of Pakistan (SBP) on Monday raised its key policy rate to 11.5 per cent. In its meeting today, the Monetary Policy Committee (MPC) “decided to raise the policy rate by 100 basis points to 11.50pc” with effect from Tuesday, the SBP said in a statement. It added that a detailed monetary policy statement will be released later. > The hike is the first in almost three years, as rising oil prices from the US-Israel war on Iran threaten to push inflation higher in the import-dependent nation. The decision was in line with market expectations that the interest rate was bound to see a rise in Monday’s announcement, albeit with differing opinions on the size of the hike. A higher interest rate will yield more money for exporters and remitters but create serious problems for importers. It will also increase the debt burden of the government, which borrows heavily from banks and corporates to accumulate liquidity needed to run the government. Tresmark, a research-based currency tracker, had correctly predicted a 100bps hike. It said that this would not be because data compelled it, but as a pre-emptive move to protect hot money flows, counter inflation, and stay aligned with rising global bond yields. “This is no longer just an oil story. Market relationships are breaking down. Oil, bonds, foreign exchange, and equities are all moving simultaneously, often in conflicting directions, with no clear anchor,” said Faisal Mamsa, the chief executive officer of Tresmark. The SBP has cut rates by a cumulative 1,150bps since June 2024, from a record high of 22pc. Pakistan’s consumer price inflation quickened to 7.3pc in March compared to the same period last year, breaching the SBP’s 5pc to 7pc target range, with some analysts warning it could approach 10pc in April. The International Monetary Fund (IMF) has previously cautioned Pakistan against premature easing and urged the bank to maintain a positive real interest rate.