ShreeMetalPrices: Pakistan central bank raises key interest rate by 100 Bps to 21%


Pakistan’s central bank increased its benchmark interest rate to a record 21 percent on Tuesday. As the cash-strapped nation sought to reduce severe food inflation & keep the trust of foreign creditors. – State Bank of Pakistan

The nation struggles with record yearly consumer inflation of over 35 percent, the 100 bp hike by the SBP.

Consumer inflation has increased as a result of global reasons in addition to Pakistan’s weaker currency, rising energy prices, & Ramadan-related rises in food prices.

Prices for food, beverages, and transportation have all increased by more than 45 percent. Which is straining household budgets and driving many people to the brink of insolvency. Last week, stampedes seeking food handouts claimed the lives of at least 16 people.

The MPC stressed that today’s decision, coupled with earlier cumulative monetary tightness, will help meet the medium-term inflation goal over the next 8 qtrs in a statement from the State Bank of Pakistan. The statement read,

The Monetary Policy Committee considers the present monetary policy position acceptable.”
Since Jan 2022, the State Bank of Pakistan has increased its benchmark rate by a total of 1025 basis points.

After falling more than 1 percent during the day. The Pakistan rupee depreciated to its lowest level ever, as it closed at 287.29 against the dollar. From the beginning of the year, the currency’s value has decreased by more than 20 percent.

According to Tahir Abbas, head of research at Arif Habib limited. There are signs that a general economic slowdown is already inevitable. Which is why the State Bank of Pakistan may have refrained from a more aggressive interest rate hike.

Most higher frequencies indexes already show negative development & a significant decline in the economy, according to Abbas. “An aggressive rate increase won’t help much,”

As part of a 6.5 billion dollar bailout contract made in 2019. Pakistan is in negotiations with the IMF to release its next loan tranche, which is estimate to be worth 1.1 billion dollar.
In what many perceived as an effort to assure the delivery of bailout funds.

The central bank increased its benchmark rate by 300 bps to 20 percent at the beginning of March, going above and beyond market forecasts.

The State Bank of Pakistan stated that it was crucial for restoring foreign exchange reserve buffers that the ninth review of the International Monetary Fund (IMF) programme come to a swift conclusion.

Analysts said that the State Bank of Pakistan governor told in a private briefing that 4.5 billion dollar in principal repayments were still owed for the remaining three months in the current fiscal year, which ends on June 30.

The researchers estimated that of that, 2.3 billion dollar will be carried over and 2.2 billion dollar will be repaid. With 100 million dollar in commercial loans, multilateral & bilateral repayments make up the majority of the total.

The only assistance Pakistan has received thus far in its efforts to avoid a potential foreign debt default has been from China, a longtime ally, through a refinancing of 1.8 billion dollar and a rollover of 2 billion dollar in March.