The SBP maintains its interest rate at 22 percent.


During its fourth straight Monetary Policy Committee (MPC) meeting, the State Bank of Pakistan (SBP) chose to maintain the benchmark interest rate at 22%, in line with market expectations. The SBP maintains its interest rate at 22 percent.

The decision represents a deliberate strategy, enabling previous rate rises to penetrate the economy and confront stubbornly high retail inflation.

The SBP’s monetary policy committee noted the recent spike in gas prices might influence the inflation forecast. The central bank said in a statement, “The decision does take into consideration the effect of the recent increase in gas prices… The Committee believed this may impact the inflation forecast, although with some offsetting events.”

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In an unplanned meeting in June, the interest rate was raised to 22% to win a $3 billion bailout from the International Monetary Fund (IMF). This bailout was part of a larger reform initiative to stabilize Pakistan’s complicated $350 billion economy.

Pakistan has been dealing with severe inflation, with monthly consumer price index-based inflation above 20% since June 2022 and hitting a record high of 38% in May 2023. The SBP and the IMF forecast a steady slowing of inflation in the current fiscal year, ending in June 2024. Despite increases in energy prices to satisfy reform objectives, inflation remained at 29.2% in November.

The MPC expressed confidence that absent significant rises in administered prices, headline inflation would fall significantly in the second half of fiscal year 24. The high borrowing rates have led to a 2% annual economic growth rate.

Nonetheless, investors have factored in the expected rise in interest rates, and there is confidence around the successful conclusion of the IMF program, which would bolster stock markets and the currency.

The IMF has already released $1.2 billion, with a further $700 million scheduled for distribution on January 11 pending board approval.

Pakistan’s foreign reserves have increased to nearly $7 billion, enough to cover 1.4 months’ worth of imports, up from $4.4 billion in July. As stated in a previous statement, the SBP anticipates that completing the first review of the current IMF program would increase financial inflows and strengthen the foreign currency reserves position.

Against this background, Pakistan’s benchmark index, KSE100, surpassed 66,000 points and is now trading at an all-time high. It gained 4,532 points in the week ending December 8th, for an unprecedented weekly return of 7.3%.