Pakistan's central bank raised its key interest rate to a record 21% on Tuesday as the cash-strapped country bid to curb crippling food inflation and maintain the confidence of foreign creditors.
The 100 basis-point (bp) increase by the State Bank of Pakistan (SBP) was less than the 200 forecast by a Reuters poll of analysts as the country grapples with record annual consumer inflation of over 35%.
Global factors have compounded consumer inflation already buoyed by Pakistan's weakening currency, energy tariff increases and hikes in food prices due to Ramadan.
Food, beverage, and transportation prices have all surged more than 45%, putting pressure on household budgets and leaving many desperate. At least 16 people were killed in stampedes for food aid last week.
"The MPC considers the current monetary policy stance appropriate and stresses that today’s decision, along with previous accumulated monetary tightening, will help achieve the medium-term inflation target over the next eight quarters," the SBP said in a statement.
The SBP has hiked its key rate by a cumulative 1025 bps since January 2022.
The rupee closed at 287.29 against the dollar, its lowest ever level, after depreciating over 1% during the day. The currency has lost more than 20% of its value since the start of the year.
The SBP may have held back from a more aggressive rate hike due to indications that a broad economic slowdown is already likely, said Tahir Abbas, head of research at Arif Habib limited.
"A majority of the high frequency indicators already depict negative growth and a massive slowdown in the economy," Abbas said. "An aggressive rate hike won't be of much help."
