Pakistan's central bank raised its key interest rate by 300 basis points on Thursday, exceeding investor expectations, as the cash-strapped country seeks to encourage the International Monetary Fund to release critical financing.
The key rate of the State Bank of Pakistan (SBP) now stands at 20%, its highest level since October 1996, with consumer price inflation now at its highest level for almost 50 years. Investors polled by Reuters had expected a rate hike of 200 bps.
"We expect a further 200bps of hikes over the coming months," Capital Economics said in a note.
The SBP had brought forward its Monetary Policy Committee (MPC) meeting from an original date of March 16, with local media saying the rate hike was a key requirement to get the IMF funding released.
At its last policy meeting in January the bank raised the rate by 100 bps to 17%. It has now put up rates by a total of 1025 bps since January 2022.
The SBP sees inflation rising further before it begins to fall. The central bank stated that the average inflation for the year is now expected in the range of 27-29% against the November 2022 projection of 21–23%.
"In this context the MPC emphasised that anchoring inflation expectations is critical and warrants a strong policy response."
