Pakistan Raises Rate for Sixth Straight Time

(Bloomberg) -- Pakistan’s central bank raised its key rate for a sixth straight time as inflation accelerated outside the range projected by the monetary authority and concerns about fiscal consolidation persisted.

The target policy rate was raised to 10.75 percent from 10.25 percent, the State Bank of Pakistan said in a statement. All but one of the 31 economists surveyed by Bloomberg predicted a hike, with 13 of them predicting it accurately.

Key Insights

• State Bank of Pakistan, the most aggressive central bank in Asia, is seeking to restore price and economic stability. Inflation accelerated to 8.2 percent in February, overshooting the central bank’s average forecast range of 6.5 percent to 7.5 percent for the year ending June
• The cumulative 500 basis points rate increase since last year is also to contain the financial blow outs from Pakistan’s twin current-account and budget deficits, which limited the nation’s ability to retire debt and pay for much-needed imports
• Prime Minister Imran Khan’s government is in talks for a bailout from the International Monetary Fund, in addition to loans from friendly nations, to bridge a financing gap
• A bailout program is expected to require Pakistan to raise interest rates, among other policy measures, according to Fitch Solutions

Read: Pakistan Central Bank to Stay Vigilant Despite Stable Inflation

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• “Underlying inflationary pressures continue, the fiscal deficit is elevated, and despite an improvement, the current account deficit is still high,” the central bank said in statement. Foreign exchange “reserves are still below the standard adequacy levels,” it said
• To read the full statement, click here

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