Inflation ripples reach the banks

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.

 

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