Pakistan cenbank raises key policy rate by 300 bps to 20%

Investors polled by Reuters had expected a rate hike of 200 bps. The central bank had brought forward its policy meeting from an original date of March 16, with local media saying the rate hike was a key requirement to get the IMF funding released.

Pakistan's central bank raised its key interest rate by 300 basis points on Thursday, exceeding investor expectations, as the cash-strapped country attempts to encourage the International Monetary Fund to release critical funding. The key rate of the State Bank of Pakistan (SBP) now stands at 20%, its highest level since October 1996. Investors polled by Reuters had expected a rate hike of 200 bps.

The central bank had brought forward its policy meeting from an original date of March 16, with local media saying the rate hike was a key requirement to get the IMF funding released. In its last policy meeting in January the bank raised the rate by 100 bps to 17%. It has now raised rates by a total of 1025 bps since January 2022.

"The MPC noted that the recent fiscal adjustments and exchange rate depreciation have led to a significant deterioration in the near term inflation outlook and a further upward drift in inflation expectations, as reflected in the latest wave of surveys," the central bank said in a statement.