The State Bank of Pakistan (SBP) on Tuesday announced its decision to lift the benchmark interest rate by 100 basis points to 9.75 per cent to "counter inflationary pressures and ensure that growth remains sustainable".

The bank signalled that it was done with hiking rates in the near-term, having already lifted the policy rate by 150 basis points at its last meeting in November.

"Given rate increases since September and outlook, the Monetary Policy Committee (MPC) felt that the end goal of mildly positive real interest rates on a forward-looking basis was now close to being achieved.

“Looking ahead, monetary policy settings are expected to remain broadly unchanged in the near-term,” the central bank said in a statement.

The SBP said that since the last meeting in November, indicators of activity had remained "robust" while inflation and the trade deficit had risen further due to high global prices and domestic economic growth.

"In November, headline inflation increased to 11.5pc year-on-year. Core inflation in urban and rural areas also rose to 7.6 and 8.2pc, respectively, reflecting domestic demand growth.

"On the external side, despite record exports, high global commodity prices contributed to a significant increase in the import bill. As a result, the November trade deficit rose to $5 billion based on Pakistan Bureau of Statistics data," the bank said.

The MPC noted that recent data releases confirm that the emphasis of monetary policy on moderating inflation and the current account deficit remains "appropriate", the statement said.

In reaching its decision, the MPC considered key trends and prospects in the real, external and fiscal sectors, and the resulting outlook for monetary conditions and inflation, the statement added.

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