State Bank of Pakistan hikes interest rate to 16 per cent to curb inflation

Karachi [Pakistan], November 26 : In a recent decision, the State Bank of Pakistan (SBP) jacked up its policy rate by 16 per cent on Friday, the Express Tribune reported on Friday citing the bank after a meeting of its monetary policy committee (MPC), according to the Express Tribune.
The decision came as the South-Asian country is currently cash-strapped and under a severe economic and political crisis and it is the need of the hour to curb the financial losses.
"This decision reflects the MPC's view that inflationary pressures have proven to be stronger and more persistent than expected," the central bank said in a statement adding that higher food and core inflation are key contributors to elevated inflation.
Notably, in October and September, the bank kept the rate unchanged at its last two meetings, the Express Tribune reported.
The SBP said that inflation is increasingly being driven by enduring domestic and international supply shocks that are pushing up prices in the midst of the protracted economic slump. These shocks are then having an impact on wider prices and wages, which might damage medium-term growth and weaken inflation expectations, reported the Express Tribune.
Despite severe floods and efforts to maintain budgetary restraint, the nation has been struggling with continuous high inflation, with the consumer price index (CPI) recording a 26.6 per cent year-over-year increase in October.
Devastating floods that peaked in August killed over 1,700 people and caused billions of dollars in damage to infrastructure as well as agricultural land.
According to the Express Tribune, Pakistan received about USD 30 billion in remittances in the fiscal year 2022, even then it did not manage to keep its current account deficit in control, as it still needs around USD 32 billion this fiscal year to make payments against foreign obligations.
Not just the foreign obligations, but also the rising inflation is making the cost of living quite difficult for the local people.
Fair Observer citing the Pakistan Bureau of Statistics (PBS) said that inflation in Pakistan peaked at a historic high of 27.3 per cent in August. But there is a large gap between the actual inflation and the government's inflation target of 11.5 per cent for this fiscal year.
The prices of daily commodities are also getting out of people's budgets. While the costs of onions have almost doubled, cooking oil prices have risen by around 83 per cent.
The floods in Pakistan, which destroyed almost 40 per cent of the standing crops are considered one of the prime reasons for such a massive rate of inflation in the country. The Fair Observer citing World Bank said that the rate of poverty in Pakistan has surged from 2.5 per cent to 4 per cent, which has taken the number of people in poverty from 5.8 million to 9 million.