State Bank of Pakistan Maintains 22% Key Interest Rate Amidst High Inflation

The State Bank of Pakistan has decided to maintain its key interest rate at 22% as it prepares for an upcoming evaluation by the International Monetary Fund (IMF) regarding a $3 billion bailout package. This decision occurs amidst a notable rise in inflation, which reached 31.4% in September following an unprecedented increase in fuel prices. Nevertheless, the bank projects that inflation will average between 20% and 22% for the current fiscal year, a decrease from last year’s rate of 29.2%.

The interest rate has been consistent since it was raised to 22% in April 2022, reflecting an assertive monetary policy advocated by the IMF. This strategy seems to have yielded some benefits, as efforts to combat black market trading have significantly strengthened the value of the Pakistani rupee against the dollar.

Moody’s has issued a caution about the risk of defaults if the IMF bailout funds are not secured. Earlier this year, Pakistan narrowly averted default by establishing a new agreement that replaced a previous stalled IMF arrangement.

In addition to the IMF bailout, Pakistan is counting on investments from its Middle Eastern partners, including Saudi Arabia and the United Arab Emirates, along with financial assistance from various bilateral and multilateral donors for reconstruction efforts following the 2022 floods. These funding sources are essential for the country to fulfill its payment obligations for the fiscal year.

The IMF’s projected inflation rate stands at 25.9%, signifying a tough economic landscape for Pakistan. The forthcoming review of the $3 billion bailout program will play a critical role in shaping the nation’s financial outlook.