Pakistan central bank keeps key rate unchanged at 22%

PAKISTAN’S central bank kept its key interest rate unchanged at 22 per cent, in line with market expectations, after its policy review on Monday (Oct 30).

The decision comes ahead of a visit by a delegation of the International Monetary Fund on Thursday that will review progress on targets set in a US$3 billion programme approved in July to bail out the struggling economy.

“The MPC (monetary policy committee) emphasised on continuing with the tight monetary policy stance,” the State Bank of Pakistan said in a statement, adding that although headline inflation had risen in September, the bank expected it to decline in October and keep falling in coming months.

The central bank had previously said it expected inflation to ease this financial year – which began on Jul 1 – to average around 20 per cent to 22 per cent, down from 29.2 per cent in financial year 2022-23.

Inflation rose sharply to 31.4 per cent in September on the back of a record fuel price hike, but the government has since slashed prices at the pump.

Inflation figures for October are due later this week.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

The IMF forecasts inflation at 25.9 per cent this year, and has advocated mildly positive rates, but the central bank chief has said previously that the global lender had not stated that it expects rate hikes, only for the policy stance to remain aggressive.

He had also said that the bank had met key targets set by the IMF ahead of the visit.

It kept the key interest rate unchanged in its previous two meetings in July and September, having earlier raised it by 12.25 percentage points to 22 per cent in a series of hikes since April 2022.

Pakistan’s currency, which saw a sharp decline in August, has also recovered significantly against the US dollar following a crackdown on black market trading, which has helped tame inflation.

A quick and successful IMF review remains critical for cash-strapped Pakistan, which narrowly avoided a default on debt obligations earlier this year thanks to a last-gasp new deal that replaced an incomplete and stalled programme.

Continued external funding is needed to finance a large number of payments due this financial year. Islamabad is counting on investments from Middle Eastern allies such as Saudi Arabia and the United Arab Emirates.

In addition to the investments, Pakistan is also relying on the materialisation of funds pledged by bilateral and multilateral donors for reconstruction efforts following devastating floods in 2022. REUTERS