Pakistan’s central bank unexpectedly raised its benchmark rate to a record high in an emergency meeting as the nation makes a final attempt to revive its loan program with the International Monetary Fund.
The State Bank of Pakistan’s monetary policy committee decided to raise rates by 100 basis points to 22%, it said in a statement. The decision has been taken after anticipated inflationary pressure that will come from the recently announced budget and decision to lift restrictions on imports, said the 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,” it said in a statement.
The South Asian nation that 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. In a dramatic final attempt to appease the lender, the nation agreed to raise taxes by $750 million and cut spending in its annual budget over the weekend.
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Pakistan’s dollar bonds rose and local stocks rallied on optimism the nation is going to secure its loan program. The nation has seen its loan program stall for more than half a year amid prolonged negotiations over issues such as the financing gap and taxes.
The committee views this action as necessary to keep real interest rates in the positive territory going forward-looking basis, the central bank said on its website Monday. 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 percent by the end of FY25, barring any unforeseen developments.”
--With assistance from Khalid Qayum.
(Updates with details throughout)
