 "State Bank of Pakistan")
By Faseeh Mangi
Pakistan’s central bank raised its benchmark interest rate to a record 21% as price gains soar and the nation teeters on the brink of a default as the International Monetary Fund’s bailout hangs.
The State Bank of Pakistan’s monetary policy committee increased the target rate by 100 basis points from 20%. The move was seen by 6 of 37 economists in a Bloomberg survey, with three predicting a hold and the rest expecting a hike of over 150 basis points. The key rate is at the highest since central bank data going back to 1956.
“Today’s decision as an important step towards anchoring inflation expectations around the medium-term target” the central bank said in a statement Tuesday.
The decision comes as inflation quickened by a fresh record in March months after authorities raised taxes and energy prices and allowed the currency to depreciate to meet IMF’s prescriptions. Funds from the IMF are crucial to avert a default and prop up an economy beset by supply shortages.
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Pakistan’s foreign exchange reserves rose to $4.24 billion as of March 24, but still covers only about one month of imports. Last month, China rolled over about $2 billion in loans providing some relief to the nation.
IMF has asked Pakistan to seek commitments for new loans from Saudi Arabia and the United Arab Emirates before it revives the $6.5 billion loan program. The nation has missed multiple deadlines to resume the bailout, raising concerns that it may have to pause debt repayments.
The overall balance of payments position continues to remain under stress, with foreign exchange reserves still at low levels, the central bank said.
The South Asian nation needs to repay about $3 billion of debt by June, Governor Jameel Ahmad said in March.
