Pakistan central bank holds key rate steady at 22%, says inflation remains elevated

Pakistan's key rate was raised to an all-time high of 22% in June to fight persistent inflationary pressures and to meet one of the conditions set by the IMF for securing the bailout. While the rescue programme has helped avert a sovereign debt default, some of its conditions, such as raising its benchmark interest rate, increasing government revenue, and increasing electricity and natural gas prices have complicated efforts to curb inflation and have dampened business sentiment.

Pakistan's central bank on Monday held its key rate at 22% for the fifth policy meeting in a row, the Governor of the State Bank of Pakistan said. The decision is the last under a caretaker government before general elections due next week. It also comes in the midst of Pakistan's $3 billion Standby Arrangement (SBA) with the International Monetary Fund (IMF).

The country's external accounts and foreign exchange reserves have improved, current account deficit is expected to shrink, and although inflation remains elevated it would start declining faster from March, governor Jameel Ahmed said. Pakistan's key rate was raised to an all-time high of 22% in June to fight persistent inflationary pressures and to meet one of the conditions set by the IMF for securing the bailout.

While the rescue programme has helped avert a sovereign debt default, some of its conditions, such as raising its benchmark interest rate, increasing government revenue, and increasing electricity and natural gas prices have complicated efforts to curb inflation and have dampened business sentiment. Despite negative real rates, the business community had been pushing for a cut for some respite amidst economic challenges.