Pak hikes key interest rate to 12.25%

Islamabad, May 20 

Pakistan’s central bank today raised its key interest rate to 12.25% to tighten the monetary policy, citing continuing inflationary pressures, a high fiscal deficit and recent exchange rate depreciation.

The 150 basis points increase follows a preliminary agreement last week with the International Monetary Fund for a $6 billion loan that is expected to come with tough conditions, including pressure for higher interest rates.

The State Bank of Pakistan (SBP) said the new rate would be effective from May 21.  The central bank had previously raised the interest rate by 25 basis points to 10.75% in its last monetary policy announced in March, but “a greater reliance on central bank financing of the [fiscal] deficit has acted to dilute the impact of previous monetary tightening”.

The data of the bank showed that the key interest rate gradually surged by a total of 6.5 percentage points since January 2018. — PTI