KARACHI — Pakistan’s central bank on Thursday raised its main policy rate by 125 basis points to 15% in its effort to cool the economy, it said in a statement, acting just days after data showed inflation hit a 13-year high last month.
Pakistan’s inflation surged to 21.3% in June, its highest since 2008, data released last week showed.
The central bank has raised its key interest rate by 525 basis points since the start of this year.
“This combined action continues the monetary tightening underway since last September, which is aimed at ensuring a soft landing of the economy amid an exceptionally challenging and uncertain global environment,” the central bank’s statement said.
It said the increased rate should help cool economic activity, prevent a de-anchoring of inflation expectations and support the rupee amid high inflation and record imports.
The bank’s Monetary Police Committee also forecast inflation between 18% and 20% and GDP growth between 3% and 4% for the current fiscal year to June 30, 2023, below the 5% target set in the annual budget in June.
The South Asian nation of 220 million has been facing an economic turmoil, with fast dwindling foreign reserves and a record depreciation of its currency.
Pakistan is in dire need of external funding to shore up its foreign reserves, now just above $10 billion following a $2.3 billion loan from China.
Islamabad is in talks with the International Monetary Fund, and its latest review, if positive, would release a $1.85 billion loan and open up other external financing options.
“Wee hope that we will reach a staff level agreement with the IMF very soon,” the bank’s acting governor, Murtaza Syed, said after the rate announcement.
Pakistan entered the 39-month, $6 billion IMF program in 2019, but less than half of the amount has been disbursed so far as Islamabad has struggled to meet agreed targets.
(Reporting by Syed Raza Hsan in Karachi, Gibran Peshimam and Asif Shahzad in Islamabad; Editing by Toby Chopra and Tomasz Janowski)