The State Bank of Pakistan (SBP) has increased the key interest rate by 125 basis points, taking it to 15%. This was announced during the press conference on the Monetary Policy Committee’s (MPC) decision over the key interest rate, amid expectation of further tightening due to a higher inflation outlook.

SBP Acting Governor Dr Murtaza Syed is chairing the MPC meeting.

In the previous meeting held in May, the MPC raised the policy rate by 150 basis points (bps) to 13.75%, aimed at containing rising inflation and mitigating the risks to external stability.

Back then, the central bank had said that as electricity and fuel subsidies are reversed, inflation is likely to rise temporarily and may remain elevated through FY23 before declining sharply during FY24.

In June, Pakistan reported inflation at 21.3% on a year-on-year basis compared to an increase of 13.8% in the previous month and 9.7% in June 2021. Most analysts saw this number as higher than expected.

Although analysts had mixed views on the upcoming policy, most of them expected a further increase in the key policy rate. A poll, conducted earlier by Topline Securities, found that around 45% of the participants expected the policy rate to increase by 100bps, 30% anticipated an increase of 150bps, while 5% expected an increase of more than 150bps.