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SBP raises interest rate to 10 %

SBP raises interest rate to 10 %

The State Bank of Pakistan on Wednesday raised the discount rate by 50 basis points (bps) to 10 per cent for two months as against the previous 9.5 per cent. The State Bank of Pakistan cited surge in inflationary pressure in the economy as the main reason for revising the interest rate upward.

The central bank foresees hike in electricity and gas tariffs; rising domestic oil prices; recent and forecaster weakness in the rupee and increase in government borrowings aimed at funding fiscal deficit as the main drivers of inflationary pressure. The raise in discount rate will affect the values of most scrips at the Karachi stock market. Cement, textile, autos and IPPs will be affected negatively, while exploration and production, and oil-marketing companies with relatively low leverage are expected to remain unaffected by this increase in the monetary policy rate.

After the rise in the discount rate, the revised SBP repo rate would now stand at 7.5 per cent, implying that the minimum profit rate to be paid on rupee savings account would stand at 7 per cent effective from December 1, 2013. This will further erode earnings of the banks. In September, the central bank had raised the monetary policy rate to tighten Pakistan’s monetary supply.