State bank raised Interest rates by 300bps to 20%, highest since October 1996

The government of Pakistan today has jacked up the key policy rates by 300bps to 20% for executing the IMF condition for the release of loan tranche (a sum) of just over $1.1 billion.

The Monetary Policy Committee of state bank (MPC) expects inflation to rise further in the next few months as the impact of these adjustments unfolds before it begins to fall, albeit at a gradual pace.

“The average inflation this year is now expected in the range of 27 – 29 percent against the November 2022 projection of 21 – 23 percent. In this context, the MPC emphasised that anchoring inflation expectations is critical and warrants a strong policy response.”

The announcement came after a meeting of the bank’s Monetary Policy Committee (MPC).The central bank said the decision reflected the “deterioration in inflation outlook” and its expectation amid recent external and fiscal adjustments.

The national CPI inflation has surged to 31.5 percent y/y, while core inflation rose to 17.1 percent in urban and 21.5 percent in rural basket in February 2023.