The State Bank of Pakistan (SBP) raised interest rates by 150 basis points to 13.75 percent on Monday, the second increase in less than two months, stepping up its fight against a deteriorating inflation outlook after the government moved to reduce fuel subsidies by billions of rupees.
“This action, together with much needed fiscal consolidation, should help moderate demand to a more sustainable pace while keeping inflation expectations anchored and containing risks to external stability,” the central bank said in a policy statement.
Since April 7, the policy rate has risen by 400 basis points. Since September 2021, the central bank has raised interest rates by 675 basis points.
The country is in economic turmoil, with high inflation, reserves falling to less than two months of imports, and a rapidly weakening currency.
The government’s indecision on withdrawing unfunded subsidies in the oil and power sectors casts further doubt on the speedy resumption of the IMF bailout program – a lifeline for the country’s fragile economy.
In Doha, loan negotiations are taking place between IMF staff and Pakistani authorities. The country will receive a $900 million tranche of the $6 billion Extended Fund Facility if the seventh is completed successfully.
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