Islamabad, June 28, 2023 (PPI-OT):Brig. (retd) Aslam Khan, Chairman of Pakistan Economy Watch (PEW) on Wednesday supported the decision of State Bank of Pakistan (SBP) to hike interest rates by one percent. SBP raised key policy rate to 22% a day after passage of revised budget on the demand of International Monetary Fund (IMF) he said.
In a statement issued here today, Aslam Khan said that SBP raised its benchmark interest rate by 100 basis points to 22 percent at an emergency meeting in a bid to rescue an IMF program that expires on June 30. The central bank has now raised its main rate by 12.25 percentage points since April 2022, mainly to curb soaring inflation, he added.
He said that higher interest rates would increase debt servicing burden on government and the private sector, but if this leads to resumption of the stalled IMF programme, the positives would outweigh the negative implications. Upward revisions in taxes, duties, and increased petroleum levy rate in the recently approved budget for fiscal 2023-24 will trigger inflation while allowing imports will eat up forex reserves, therefore an interest rate hike was necessary.
The central bank also believes that the decision would help to bring down inflation towards the medium-term target of 5-7% by the end of FY25. Removing curbs on imports has increased risks for Pakistan as consignments stranded on port are worth more than the forex reserves held by the SBP, which is alarming, he said. SBP has claimed that it would continue to carefully monitor economic developments and take appropriate action to achieve the objective of price stability over the medium term if necessary.
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