That the State Bank of Pakistan (SBP) decided to increase the interest rate in November was no surprise. It was the degree by which it decided to do so – a whopping 150 basis points to 8.75%- that took everyone by surprise.
Though, in hindsight, it had been coming for weeks now. To recall, the SBP had aggressively slashed the benchmark interest rate from 13.25% in January 2020, to 7% by June 2020 to minimise the impacts of Covid-19 on the economy. It then proceeded to keep the interest unchanged for six consecutive monetary policy committee meetings during a 13 month period. Finally, in July it raised the interest rate to 7.25% in July 2021, a move that caught analysts off guard, many of whom were expecting the central bank to leave the rate unchanged.