Pakistan’s central bank has raised its benchmark interest rate to 20 percent to rein in rising inflation, which is expected to rise further as the country works to restart a $6.5 billion International Monetary Fund bailout. does.
The monetary policy committee of the State Bank of Pakistan has increased the target rate by 300 basis points from 17 per cent, the central bank said in a statement on its website. The move was watched by 6 out of 38 economists, most of whom expected a 200-basis-point hike. The current 20 percent is the highest since June 1997, according to data compiled by Bloomberg, when the central bank used a different benchmark.
“The MPC noted that the recent fiscal adjustments and exchange rate depreciation have contributed to a significant deterioration in the near-term inflation outlook and a further upward drift in inflation expectations,” the central bank statement said. “The short-term costs of bringing down inflation are lower than the long-term costs of allowing it to rise.”
Average inflation in this fiscal year ending June is now expected to be in the range of 27 per cent-29 per cent, as against the estimate of 21 per cent to 23 per cent in November. According to central bank data, price rise in February for the third straight month reached 31.55 per cent, the highest since the 1960s.
“The Committee expects inflation to rise further over the next few months as the impact of these adjustments appears before it declines, albeit at a slower pace,” the central bank said.
The latest test comes as the nation tries to secure an IMF bailout to prevent debt defaults, unlock more money and address severe supply shortages. According to Fitch Ratings, $7 billion in repayments will take place in the coming months, including $2 billion in Chinese loans due in March.
currency crisis deepens
Pakistan’s rupee hit a record low and its dollar bonds tumbled on Thursday as the country struggled to unlock crucial IMF funding, while a bigger-than-expected interest rate hike failed to revive its markets. .
The rupee hit a low of 284 per US dollar in local trade, Eikon data showed, before it recovered some losses to settle at 279 per dollar, still down some 6 per cent. The country’s international bonds fell more than 3 cents to the dollar.
The currency – which has weakened nearly 20 percent since the start of the year – has been sliding following delays in a deal between Pakistan and the International Monetary Fund (IMF), over which the parties have been negotiating since early last month. “The delay in IMF funding is creating uncertainty in the currency market,” said Mohammad Sohail of Karachi-based brokerage house Topline Securities.
IMF funding is critical for the South Asian economy, which has been in economic turmoil, to unlock other bilateral and multilateral external financing.
Pakistan’s ousted Prime Minister Imran Khan said on Thursday that Pakistanis are paying a heavy price for the “conspiracy” to change power.
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