After almost 20 months of maintaining the policy rate at 5.75 per cent, the State Bank of Pakistan (SBP) on Friday announced to raise the rate by 25 basis points to 6pc.

The monetary policy statement released by the SBP said that the current account deficit remains under pressure despite rising exports because of high levels of import.

Large-scale manufacturing grew 7.2pc in July-November period of the financial year 2017-18 as compared to only 3.2pc during the same period in 2016-17, the SBP said.

"Benefiting from both infrastructure and China-Pakistan Economic Corridor related investments, construction and its allied industries are expected to maintain their higher growth momentum."

"After incorporating the impact of commodity sector dynamics on the services sector, the real GDP growth is projected to be around 5.8 per cent, significantly higher than the financial year 2016-17, but marginally lower than the annual target of 6 per cent for the financial year 2017-18."

The statement said that this was because of the expectations of a below-target wheat crop, resulting from a reduction in cultivation area.

The bank also predicted that inflation was expected to rise as, despite headline inflation standing at 3.8pc for the first half of the financial year, core inflation (non-food, non-energy) touched 5.5pc, which, combined with rupee depreciation and rising oil prices will likely increase inflation.

The current account deficit increased to $7.4 billion in the first half of the financial year, owing to increasing imports, despite rising remittances and fastest growth in exports during past seven years.

However, the SBP expressed hope that the export package, rupee depreciation, and rising remittances, among other factors, would help reduce the deficit.

Other central banks adjusting their policy rates upwards and build-up of demand pressures, in combination with rupee depreciation and rising oil prices, have contributed to policy rate adjustment to 6pc, the bank concluded.

The move "would balance growth and stability in the medium to long-term," the bank said.