Photo used for illustrative purpose.
Pakistan’s main policy rate has been hiked 125 basis points to 15%, the country’s acting central bank governor Murtaza Syed said on Thursday.
Syed’s announcement at a virtual press conference followed a meeting of the Monetary Policy Committee, days after inflation in Pakistan surged to a 13-year high in June.
The key interest rates have been increased 525 bps 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 bank said in a statement that followed the news conference. The bank said the higher rate should help cool economic activity, prevent a de-anchoring of inflation expectations and provide support to the Rupee in the wake of multi-year high inflation and record imports.
Murtaza Syed said we are very hopeful of reaching a staff level agreement with International Monetary Fund very soon.
Pakistan’s consumer price index (CPI) rose 21.3 per cent in June from a year earlier, the statistics bureau said last week, for the South Asian nation’s highest inflation in 13 years.
In May, the consumer price index was up 13.8 per cent on the year. The month-on-month rise in June was 6.3 per cent.
The spike comes as fuel prices have risen about 90 per cent since end-May after the government scrapped costly fuel subsidies in a bid to cut its surging fiscal deficit and secure resumption of an IMF bailout programme.
Transport saw the biggest rise, with its index rising 62.2 per cent in June on the year.
The price index for food items, which make up about a third of the CPI basket, rose 25.9 per cent.
Pakistan has been struggling with high inflation for the last few months.
The CPI index rose 12.1 per cent for financial year 2021-22, which ended in June, compared with 8.9 per cent in the last financial year.
Despite rising global oil prices, subsidies for fuel and power were adopted in March 2022 by the government of previous Prime Minister Imran Khan, as he faced mounting discontent over his handling of the economy and rising inflation.
He was ousted in April, and the new government began reversing the costly subsidy, which it brought on par with international prices late last month.
Prices of fuel were hiked further on Thursday, with the cash-strapped government imposing a petroleum levy in its battle to reduce the fiscal deficit.
The levy, which officials expect to rise even further, was part of fiscal consolidation measures agreed with the IMF to resume the bailout programme.
Adding to Pakistan’s inflation woes has been the weakening of the rupee against the dollar.
Meanwhile the Pakistan’s monthly fuel oil imports are set to hit a four-year high in June, Refinitiv data showed, as the country struggles to buy liquefied natural gas (LNG) for power generation amid a heatwave that is driving demand.