Pakistan Central Bank to Raise Interest Rates on IMF Instructions

Analysts predict that Pakistan's central bank will raise its key interest rate again on July 31 to combat persistently high inflation, yielding to pressure from the International Monetary Fund (IMF).

The International Monetary Fund (IMF) said in a staff report earlier this month that Pakistan must continue its monetary tightening cycle, a week after the lender approved a new bailout arrangement with the South Asian nation that helped it avoid a debt default.

The State Bank of Pakistan is expected to raise the key rate by 100 basis points (bps) to 23% at its policy meeting next week, according to nine of 16 analysts, with one expecting a smaller 50 bps increase and six expecting no change.

Since April 2022, the State Bank of Pakistan (SBP) has raised its key policy rate by 12.25 percentage points, primarily to combat rising inflation.

The SBP kept interest rates unchanged in June, claiming that inflation had peaked at 38% the previous month. However, before the end of the month, it raised rates by 100 basis points in an emergency meeting to secure IMF funds, citing a "slightly deteriorated inflation outlook."

Pakistan stated in the Memorandum of Economic and Financial Policies (MEFP) that it is prepared to consider further action at the next monetary policy committee meeting and subsequent ones until inflation and inflation expectations are on a clear downward path.

Sami Tariq, head of research at Pak-Qatar, said as a preemptive measure to control inflation arising out from increase in administered utility prices of gas and electricity, the central bank would raise rates by 100 bps.