The loan package of $6 billion from the IMF has come up with tough conditions in order to cut the current account and fiscal deficit. The Central bank has also revised the policies 9 times since last year. State Bank of Pakistan SBP has recently increased the interest rate from 100 base points to 13.25% due to the inflationary pressure. Prices are growing as a result of high utility costs.
This pressure is followed by the International Monetary Fund (IMF) $6 billion loan with strict policies and regulations in order to cut fiscal and current account deficit along with strengthening the shrinking currency reserves.
SBP Governor Reza Baqir said that the current increase in the interest rates is the result of inflationary pressure and an increase in the utility prices due to the recent budget presented by the government. He also added that central bank’s Monetary Policy Committee (MPC) is also ready for any kind of unexpected development. They may change according to the tightening or ease in the monetary policies. Moreover, according to him current hike in the interest rate was necessary to address the longstanding imbalances.
The committee gave a statement that the decision to raise the interest rate by MPC was because they are of the point of view to adjust the imbalances in the interest rate and the exchange rate with this hike.
Moreover, the Central Bank has increased the rate nine times since the beginning of last year with total 750 base points in a struggle to control the inflation.
Last year the inflation eased to 8.9%, but Reza Bakir said that this rate will rise due to the inflation to 11% to 12% in the current fiscal year before falling in 2021.
He also elaborated that according to their projection, inflation in a few months and in the first half of the fiscal year is high and in the second half this inflation will be considerably lower. At the start of next fiscal year, inflation will be decreased noticeably.
Furthermore, this hike in the interest rate will benefit the people with major savings in the bank accounts. Moreover, this increase in the interest rate will definitely control the dollarization in the economy. People will soon prefer to save money in rupees rather than in dollars.