Central bank raises policy rate by 50 basis points to 12pc

On Monday, the Central Bank of Pakistan (SBP) increased its key policy rate by 50 basis points to 12%. Governor Jameel Ahmed explained during a press conference in Karachi that the Monetary Policy Committee (MPC) deliberated on the matter since their September meeting. The decision was influenced by various factors, particularly the inflation outlook, including the impact of the US-Israel war on Iran on energy and oil prices, and domestic market developments.

Nine out of ten MPC members voted in favor of the rate hike, with one member advocating for an even higher increase. The SBP also considered consumer expectations, forecasts from other experts, global commodity and oil prices, remittances, and export trends. Ahmed noted a deterioration in the current account, though its impact remained modest, accounting for just 0-1% of GDP.

The central bank updated its forecast for remittances, estimating $45 billion, and reported an improving export trend, though it still fell short of economic needs. The policy rate, previously at 11.5%, had been held steady since a 100 basis point increase in April, following the first hike in nearly three years in response to rising global energy prices and supply chain risks.

Since mid-2024, the SBP had reduced the rate by 1,050 basis points, from a peak of 22% in June 2023, as inflation significantly decreased from its all-time highs.