Pakistan raises main key rate by 100 bps to 22% in emergency meeting
2 min read 26 Jun 2023, 07:32 PM ISTPakistan's central bank Monday raised its benchmark rate to a record high (100 bps to 22%) in an emergency meeting, in a bid to rescue its loan programme with IMF that expires on Friday.
PremiumPakistan's central bank Monday raised its benchmark rate to a record high (100 bps to 22%) in an emergency meeting, in a bid to rescue its loan programme with International Monetary Fund (IMF) that expires on Friday.
The decision has been taken after anticipated inflationary pressure that will come from the recently announced budget and decision to lift restrictions on imports, the State Bank of Pakistan (SBP) said in a statement.
“While the MPC views these measures as necessary in the context of completion of the ongoing IMF program, they have increased the upside risks to the inflation outlook," the SBP said in a statement.
The SBP has now raised its main rate by 12.25 percentage points since April 2022, mainly to curb soaring inflation.
On June, 12 the SBP had left its key rate unchanged.
Pakistan is going through its worst economic crisis has seen the prospects for a revival of its loan program with the IMF take a positive turn before it expires on Friday.
The move appeared to be focused on securing the IMF's support for the country, reported Reuters quoting Fahad Rauf, head of a Karachi-based brokerage firm Ismail Iqbal Securities
"This seems to be another IMF condition. Higher rates would increase debt servicing burden on both government and private sector, but if this leads to IMF program, the positives would outweigh the negative implications, considering fragile macroeconomic conditions," Rauf said.
"Two important domestic developments since the last meeting that have slightly deteriorated inflation outlook and which could potentially increase pressure on the already stressed external account," the SBP said in the statement.
"While the MPC views these measures as necessary in the context of completion of the ongoing IMF programme, they have increased the upside risks to the inflation outlook," the bank said.
The step would “help further anchor inflation expectations – which are already moderating over the last few months, and support bringing down inflation towards the medium term target of 5–7% by the end of FY25, barring any unforeseen developments," the bank said.
The MPC sees additional taxes as contributing directly and indirectly to inflation, while the lifting of its guidance on imports may exert pressures in the foreign exchange market resulting in "higher-than-earlier anticipated exchange rate pass-through to domestic prices".
