State Bank of Pakistan (SBP) Monetary Policy Committee (MPC) Monday announced increasing the rate of interest from 7 per cent to 7.25 per cent.

According to the 24News HD TV channel, the SBP’s committee released its decision about the new monetary policy of the government.

The monetary committee increased the interest rate by 25 basis points for the next two months.

Initially, it was expecting that the interest rate would not change and remain at the current level of 7 per cent but the monetary committee increased it in its decision.

Economist Muzammil Aslam commenting on the decision said that the interest rate was increased by 25 basis points due to the deficit of the current account and high inflation.

Pertinent to mention here that the changes in market interest rates influence the borrowing cost for consumers and businesses as well as the return on deposits for the savers. Generally, lower interest rates encourage people to save less and consume or invest more, and vice versa.

Changes in the policy rate also influence the value of financial and real assets, impacting people’s wealth and thus their spending. The adjustment in demand finally affects the general price level and thus inflation in the economy.

Reporter: Ashraf Khan