Pakistan’s central bank yesterday (Monday) increased its key interest rate to 12.25 per cent to tighten the monetary policy, mentioning continuing inflationary pressures, a high fiscal deficit and recent exchange rate depreciation.
According to sources, The State Bank of Pakistan (SBP) said trends in government borrowing showed an expanding fiscal deficit during the first nine months of the fiscal year.
“Despite the improvement in the current account and a noticeable increase in official bilateral inflows, the financing of the current account deficit remained challenging. Consequently, reserves declined to US$ 8.8 billion as of 10th May 2019 from US$ 10.5 billion at end-March 2019,” the SBP said.
The 150 basis points increase follows a preliminary agreement last week with the International Monetary Fund for a USD 6 billion loan that is expected to come with tough conditions, including pressure for higher interest rates.
The State Bank of Pakistan (SBP) said that the new rate would be effective from May 21.