Home/ News / World/  Another policy rate hike of 200 bps likely in crisis-hit Pakistan

Pakistan's central bank, the State Bank of Pakistan (SBP) is likely to increase the benchmark policy rate by 200 basis points to 22% in the monetary policy statement that is scheduled to take place on April 4, 2023. The bank has already raised the interest rate by 300 basis points to 20% in the first week of March this year. 

According to a report published by Dawn, a clear indication of the policy rate hike was given in the latest treasury bill auction held on March 22. In the latest treasury bill auction, cut-off yields on three-, six-, and 12-month certificates were increased by 100bps, 114bps, and 50bps, respectively. 

Based on these cut-off yields, market participants expect interest rates to be increased by another 200bps in crisis-hit Pakistan, the report said. 

Financial sector analysts stated that a hike in the interest rate could be a need for the government because inflation is going out of control in the country. Pakistan's weekly inflation has recently crossed 45%-mark, which is leading to the weak purchasing power of its citizens, especially during the holy month of Ramadan. 

Apart from controlling the inflationary pressure, the policy rate increase will also facilitate the long-awaited ninth review with the International Monetary Fund (IMF) which is necessary to unlock the bailout package. 

The citizens have been hit hard by rising inflation as the government struggles to secure a bailout package from IMF. People are even ending their lives due to the rising prices of essential commodities.

IMF and Pakistan are locked in a debate over an unfinished loan program required for the ongoing financial collapse. Both have been negotiating since early February on an agreement that would release USD 1.1 billion to the cash-strapped, nuclear-armed country of 220 million people, and it's supercritical for the liquidity-challenged country.

The Pakistani government has made various economic modifications including hikes in fuel prices, raising taxes, and others demanded by the financial body for loans. The funds are part of a USD 6.5 billion bailout package the IMF approved in 2019 -- vital to Pakistan to avert defaulting on external payment obligations.

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Updated: 30 Mar 2023, 08:52 AM IST
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