KARACHI: The State Bank of Pakistan (SBP) hiked on Friday the key interest rate by 50 basis points to a 67-month high at 10.75% to put breaks on accelerating inflationary pressure.
The monetary policy committee at the central bank has tightened the policy keeping in view the rising inflationary pressure due to recovery in prices of petroleum products and essential food items, mounting fiscal deficit despite a sharp cut in PSDP (development budget), rationalisation of tariffs and duties, and narrowing real interest rate as it declined to 1.6% compared to four-year average of 2.85% earlier.
Initiate estimates suggest Pakistan is all set to hit a five-year high of 9.1% inflation in March 2019 compared to 8.2% in the previous month of February.
With the latest increase, the key interest rate has surged by a total of five percentage points since January 2018.
Some of the analysts commented before the day rate-hike announcement that there was no need for the latest increase.
However, Pakistan is set to enter into a long-term loan programme of the International Monetary Fund (IMF), which has set the condition for further hike in the rate.
To recall, IMF mission chief for Pakistan, Ernesto Ramierz-Rigo, held a meeting with the State Bank of Pakistan (SBP) on Wednesday ahead the country’s top financial institution was scheduled to announce the key interest rate for the next two months on Friday.
The central bank has been increasing the rate under the currency cycle since there was no inflationary pressure in the economy due to the then low international oil and food prices.
SBP, however, kicked start the journey of increasing the rate to cool down aggregated demand in the overheated economy, as acceleration in economic growth in FY18 was achieved on the back of higher imports which created balance of payment deficit and mounted pressure on the country’s foreign currency reserves and rupee.
The rupee has depreciated 33.4% to 140.78 against the US dollar in the inter-bank market since December 2017.