The International Monetary Fund (IMF) has welcomed the Monetary Policy Committee (MPC) of the State Bank of Pakistan’s decision of raising the policy rate by 250 basis points (bps) to 12.25 percent.

The MPC on Thursday raised the policy rate by 250 basis points to 12.25 percent.

Responding to Business Recorder’s query over the rise in policy rate by the MPC, Esther Perez Ruiz, IMF resident representative stated, “We welcome the State Bank of Pakistan Monetary Policy Committee’s strong policy rate action, given the elevated inflation and heightened uncertainty that Pakistan is facing”.

The IMF in its report, “2021 article IV consultation, sixth review under the extended arrangement under the extended fund facility, and requests for waivers of applicability and nonobservance of performance criteria and rephasing of access” noted that the Staff welcomed the recent policy rate hike and sees continued monetary tightening critical to support much-needed disinflation. This involves not only using the interest rate as an instrument but also phasing out various liquidity-enhancing facilities over the medium term.

It further noted that the Staff and the SBP agreed that the pace of policy rate adjustment should take into account the broader policy mix and the degree of fiscal adjustment. Staff noted that the effort to tighten monetary conditions should also be reflected through scaling back refinancing facilities and reducing the interest rate subsidy vis-à-vis the policy interest rate.

The story was originally published in Business Recorder on April 09, 2022.