The State Bank of Pakistan has increased the interest rate to 12.5percent. The announcement about increasing the interest rate was made on Monday. The increased rate would be put into effect from today that is the 21st of May.
The surge of 1.5percent is for 2 months. It is not confirmed that whether the State Bank would further increase this rate after the 2 months’ duration is up or not.
A higher benchmark interest rate means that the commercial banks would also be surging their interest rates, hence making it costlier to borrow or take loans.
In the announcement of the monetary policy on Monday, the State Bank said that it has surged the policy rate as part of its policy measures for addressing the pressures being created by higher inflation, the higher fiscal deficit, the recent deprecation in rupee and the potential adjustments in the rates of gas and electricity.
The statement mentioned that there have been 3 major developments since the last meeting of the Monetary Policy Committee which was held in March. Out of the 3, the first significant development is that the government has signed a 3-year programme with the IMF, the fiscal deficit has surged as there is more borrowing and the rupee has depreciated by 5.93percent against the dollar.
Muhammad Suhail—a financial analyst told local media that it was anticipated that the interest rate would surge by 1percent to 2percent. This would have no direct impact on the expenses. He added that this would be a way by which the government would be controlling inflation.
The central bank is taking steps for stopping imports. He further said that if the interest rate does not rise in the next announcement then that would be a positive indication.
He also added that these steps would hurt in the short-term but would assist the economy. As per Suhail’s predictions, it would take the economy a duration of 6 to 12 months to recover using these measures.