Asia’s Fastest Inflation Prompts Jumbo Rate Hike in Pakistan
Asia’s Fastest Inflation Prompts Jumbo Rate Hike in Pakistan
(Bloomberg) -- Pakistan’s central bank raised its key interest rate by more than expected in a second consecutive hike aimed at arresting Asia’s fastest inflation and stemming a decline in the rupee.
The benchmark target rate was boosted by 150 basis point to 8.75%, according to a statement from the State Bank of Pakistan on Friday, which brought forward its policy meeting by a week. While all 41 analysts surveyed by Bloomberg expected an increase, the biggest they predicted was 100 basis points.
Its biggest rate hike since May 2019 comes as the South Asian economy grapples with stubborn inflation, due in parts to pent-up demand, high global commodity prices and rising imports. Consumer prices rose 9.2% in October, above the central bank’s 7%-9% target range.
The central bank sees “there is now a need to proceed faster to normalize monetary policy to counter inflationary pressures and preserve stability with growth,” it said in a statement. It added that rising global commodity and energy prices are a risk, and that the current account deficit this fiscal year will “modestly exceed” its earlier forecast of 2%-3% of gross domestic product.
Meanwhile, investors have turned bearish on Pakistan as finalizing a loan deal with the International Monetary Fund drags on, with the two sides disagreeing on conditions including income tax and power tariffs reforms.
The nation’s currency has weakened more than 14% in the past six months, making it the worst performer in Asia, according to data compiled by Bloomberg.
The central bank has already taken multiple steps in recent months to ease domestic demand, including restricting consumer financing and raising cash reserve requirements for banks to absorb excess liquidity from the system. The monetary authority unexpectedly raised interest rates by 25 basis points at its last meeting.
The State Bank of Pakistan also said Friday in a separate statement that it will increase the number of rate reviews a year to eight, from six, “enhance the predictability of monetary policy actions.”
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