Pakistan’s central bank kept its benchmark rate unchanged despite the International Monetary Fund calling for further tightening to reduce price pressures.
The State Bank of Pakistan maintained the target rate at 22%, Governor Jameel Ahmad said in a press conference in Karachi on Monday. The move was seen by 17 of 39 economists in a Bloomberg survey, with 22 predicting a hike ranging from 50-100 basis points.
Elevated borrowing costs are key to reining in demand and inflationary risks arising from tax hikes and lifting of import restrictions. In a policy discussion note, the Washington-based lender has made a case for further interest rate hikes to tame price gains. At 29.4%, Pakistan’s inflation has been Asia’s fastest.
The nation’s central bank has hiked benchmark rates by 600 basis points since the beginning of the year. Earlier this month, Pakistan won final approval for a $3 billion aid program that helped avoid a default and unlocked funding from friendly nations.
Pakistan’s foreign exchange reserves have almost doubled to $8.19 billion since the IMF loan. Investors are turning optimistic on the nation’s assets with dollar bonds poised for a 6% advance in July, its fourth consecutive monthly gain. The nation’s benchmark share index is among the best performers globally in July.
Pakistan had been facing its worst economic crisis that led growth to drop almost to zero and currency to drop a fifth of its value in the past year. Keeping up with the reforms will be key for nation that will vote for a new government later year.
