ISLAMABAD – Pakistan’s central bank on Tuesday increased its key interest rate by 100 basis points, as the cash-strapped country is making all-out efforts to salvage funds from International Monetary Fund.
Monetary Policy Committee stated that inflation soared to a record high and is expected to climb up in the near term.
In a statement, the central bank said “At its meeting today, the MPC decided to increase the policy rate by 100 basis points to 21 percent.”
The Committee maintained that the country’s financial sector remains broadly resilient, while economic activity continues to moderate. It maintained key developments having implications for the macroeconomic outlook.
The statement further reads “First, the current account deficit has narrowed considerably, more than previously anticipated, mainly on the back of sizable import containment. Nonetheless, the overall balance of payments position continues to remain under stress, with foreign exchange reserves still at low levels.”
“Second, significant progress has been made towards completion of the 9th review under the IMF’s EFF program.
“Third, recent strains in the global banking system led to further tightening of global liquidity and financial conditions. These have added to the difficulties of the emerging market economies like Pakistan to access international capital markets.”
SBP officials justified their monetary policy stance and highlighted that Tuesday’s move, along with accumulated monetary tightening, will help achieve the medium-term inflation target over the next 8 quarters.
It also maintained that an increase in policy rate helped inflation, and will control inflation.
