KARACHI: Against market expectation, the State Bank of Pakistan (SBP) raised the key interest rate by 25 basis points to 6%, a clear signal that the pace of inflation was increasing.
The central bank had kept the discount rate unchanged at 5.75% since May 2016, the lowest level in four decades. It was in double digits at 10% in the first half of fiscal year 2012-13 before easing inflationary pressure led to a decline in the interest rate.
However, rupee depreciation against the US dollar and rising international oil prices, which play a significant role in Pakistan’s import bill, fuelled inflation in the country. Inflation clocked in at 4.6% in December against the SBP-targeted 6% for the ongoing fiscal year.
The anticipated change in rupee-dollar parity and expensive imports, which remain two dominating factors for uptrend in inflation, also widened the current account deficit and ate up foreign exchange reserves, further putting pressure on inflation.
