The surge in inflation to over 8% has turned the real interest rate (prevailing interest rate minus inflation) negative by one percentage point, which is contrary to the practice of keeping the policy rate above the rate of inflation. The market has largely developed consensus that the central bank will maintain the status quo. Earlier, the SBP aggressively slashed the benchmark interest rate by 625 basis points from March to June 2020 to 7%. Moreover, the previous monetary policy statement in January also hinted at a gradual and measured monetary tightening stance when the need arises. Therefore, it seems likely that the central bank would let the real interest rates remain negative in the medium term,” she said.

Source: The Express Tribune March 19, 2021 03:28 UTC