SBP raises interest rate to 12% amid Iran-US tensions and rising oil prices

• The Monetary Policy Committee approved a 50-basis-point increase, with nine of its 10 members supporting the move.
• The SBP raised its annual remittance forecast to $45 billion and projected economic growth of 3.75% to 4.75%.
• The central bank aims to increase its foreign exchange reserves to $23 billion by year-end and $25 billion by June 2027.

The State Bank of Pakistan has increased its benchmark interest rate to 12% from 11.5%, citing economic uncertainty arising from Iran-US tensions and rising international oil and commodity prices.

Nine members of the 10-member Monetary Policy Committee voted in favour of the 50-basis-point increase. All members attended the meeting.

The central bank said the decision reflected risks to the economic outlook from regional tensions and developments in global commodity markets.

During the monetary policy announcement, the SBP governor also revised the forecast for workers’ remittances upward to $45 billion for the current fiscal year, compared with the earlier estimate of $44 billion. Remittance inflows reached approximately $11 billion in the first quarter.

The central bank expects the current account deficit to remain within its target. It projects annual imports of $71 billion, while exports are forecast at between $32.5 billion and $33 billion.

Economic growth is expected to range from 3.75% to 4.75% during the current fiscal year. Production of five major crops is also forecast to increase compared with the previous year.

The governor said the SBP’s foreign exchange reserves stood at $21.5 billion. He added that the country’s external account issues had been resolved and that foreign debt had increased only marginally over the past four years.

The SBP plans to continue building reserves, targeting $23 billion by the end of this year and $25 billion by June 2027. It also aims to bring official reserves to a level sufficient to cover four months of imports.

Outlining financing terms, the governor said the export refinance rate under a 10-year lending scheme had been set at 2% for the first two years. The rate would be fixed at 5% for the remaining eight years.