SBP's benchmark policy rate against the US Federal Reserve's federal funds rate.
SBP's benchmark policy rate against the US Federal Reserve's federal funds rate.
▸Pakistan fell 6.1% over the selected period — from 12.25% to 11.50%.
▸United States rose 5950.0% over the selected period — from 0.06% to 3.63%.
▸Over this period, Pakistan and United States moved closely together, moving in the same direction (correlation coefficient: 0.61).
Sources:: SBP EasyData & FRED
The gap between Pakistani and US interest rates affects the relative attractiveness of holding Rupee versus Dollar assets — a narrowing gap can pressure capital flows and the exchange rate.
Why does Pakistan's policy rate sit so much higher than the Fed Funds Rate?
Higher domestic inflation, currency depreciation risk, and a need to attract/retain foreign currency deposits all require Pakistan to offer a much higher policy rate than a low-inflation economy like the US.
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