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SBP set to announce policy rate today

The State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) is set to announce the policy rate at 4:30pm today (Monday).

According to Radio Pakistan, experts expect the interest rate to be maintained at seven per cent due to the current economic situation.

During July’s policy announcement, SBP Governor Dr Reza Baqir said that the policy rate had been kept at 7pc for more than a year to support the economy during the Covid-19 pandemic.

He had credited “a consistent monetary policy” as well as other measures taken by the SBP for the country’s 3.94pc economic growth.

The SBP’s MPC sets the benchmark interest rate at least six times a year in view of the prevailing economic situation.

Most of the borrowing and lending activity in the economy is pegged to it. A low rate makes the availability of credit more affordable, thus galvanising the wheels of the economy. But it also poses the risks associated with an overheated economy. Central banks hike the key interest rate to curb inflation as prices rise on the back of too much money.

The SBP has maintained the status quo since June last year after it reduced the policy rate from 13.25pc in about three months following the outbreak of Covid-19.

The monetary policy is critical for the stakeholders, particularly the business sector since the interest rate has remained unchanged for more than a year while inflation is higher than the interest rate. The real interest rate is, therefore, negative.

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