On Tuesday, Pakistan’s central bank increased its key interest rate by 100 basis points to its all-time high, as the financially challenged country intensified its efforts to tackle the rising cost of living.
The State Bank of Pakistan (SBP) has raised its key interest rate to a record 21% as the country grapples with soaring consumer prices. The move comes as the annual consumer price inflation reached an all-time high of just over 35% in March. The SBP’s key rate is now the highest it has ever been.
“The Monetary Policy Committee (MPC) believes that the current monetary policy stance is suitable, and highlights that the decision made today, together with prior accumulated monetary tightening, will aid in meeting the inflation target in the medium term during the next eight quarters,” stated the SBP in a press release. The rupee ended the day at an all-time low of 287.29 against the US dollar after declining by over 1%.
Most investors polled by Reuters had anticipated a rate hike of 200 basis points, but Pakistan’s central bank surprised the market by raising its key interest rate by 100 basis points to a record 21%. The country has been grappling with high inflation caused by a weakening currency, rising energy tariffs, and elevated food prices during Ramadan, as global consumer prices continue to surge.
The surge in prices has created a lot of pressure on household budgets and resulted in desperation for many people. The situation has become so dire that at least 16 people were killed in stampedes for food aid last week. Food, beverage, and transportation prices have all increased by more than 45%. As part of a $6.5 billion bailout agreement made in 2019, the country is in talks with the International Monetary Fund to release its next tranche worth around $1.1 billion.
The State Bank of Pakistan (SBP) had raised its key interest rate by 300 basis points to 20% in early March, which was more than what the market expected. The move was seen as an attempt to fulfill an important condition of the IMF to receive the pending bailout funds. The SBP reiterated in its statement that the completion of the ninth review of the IMF program was crucial for building up foreign exchange reserve buffers.
