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SBP maintains interest rate at 5.75 per cent

The State Bank of Pakistan (SBP) announced that it will maintain the target rate at 5.75% over the next two months.

The central bank made the announcement  in a statement released on Saturday. The SBP announces a target rate every two months, which serves as the benchmark interest rate for overnight funds in the inter-bank market. It is one of the tools the SBP uses to ensure price stability in the economy.

Decreasing the target rate poses the risk of high inflation, but also stimulates economic growth by making credit cheaper, however contrary to it increase the target rate restricts the level of liquidity, which subdues consumer prices in the economy. The central bank tries to strike a balance by targeting the overnight cost of funds at a level that promotes maximum economic growth without causing high inflation.

The Monetary Policy Committee (MPC), which is headed by the SBP governor and includes three independent economists as external members, takes the decision to revise or maintain the target rate after taking into account factors like anticipated inflation, foreign exchange reserves and commodity prices.