ISLAMABAD : Pakistan’s central bank on Tuesday announced its decision to lift the benchmark interest rate by 100 basis points to 9.75per cent to counter rising inflation and a large current account deficit.
The bank signalled that it was likely done with hiking rates in the near-term, having lifted the policy rate by 150 basis points at its last meeting in November.
“Given rate increases since Sept and outlook, the MPC (Monetary Policy Committee) felt that the end goal of mildly positive real interest rates on a forward-looking basis was now close to being achieved,” the State Bank of Pakistan said in a statement.
“Looking ahead, monetary policy settings are expected to remain broadly unchanged in the near-term.”
The bank has been facing a falling Pakistani rupee, high inflation and a current account deficit which prompted it to begin hiking rates as the country’s government also struck a deal with the International Monetary Fund to revive a stalled US$6 billion funding plan.
Rising inflation is hitting the country’s sizeable poor and middle classes, as prices for essentials such as food and fuel climb ahead of the cooler winter months.
The bank revised its inflation forecasts for this fiscal year to 9-11per cent from 7-9per cent previously.
The bank noted that the current account deficit had risen “sharply” due to a rise in imports, partly due to high global commodity prices. The bank forecast the current account deficit would be 4per cent of gross domestic product this fiscal year, up from 2-3per cent in its previous estimates.
(Reporting by Charlotte Greenfield and Syed Raza Hasan; Editing by Andrew Heavens and Ed Osmond)