Pakistan unexpectedly raises rate for fifth straight meeting

Karachi

PAKISTAN'S central bank unexpectedly raised its key rate as the nation looks for aid from friendly nations to shore up its foreign reserves and avoid a balance-of-payment crisis.

The target policy rate was raised for the fifth straight meeting to 10.25 per cent from 10 per cent, State Bank of Pakistan Governor Tariq Bajwa said at a briefing in Islamabad Thursday. While five of the 30 economists surveyed by Bloomberg predicted a hike, none of them saw a 25 basis-point increase. While four saw a half-point increase and one a 100-basis-point hike, others expected no change.

The State Bank raised rates by a cumulative 425 basis points last year, making it one of the most aggressive central banks in Asia The hike comes despite inflation having slowed to 6.2 per cent in December, below the central bank's annual target of 6.5 per cent to 7.5 per cent.

The South Asian nation is tapping friendly nations to bridge a financing gap of more than US$12 billion. It secured US$6 billion from the United Arab Emirates and Saudi Arabia, while China is expected to follow suit.

It is also negotiating a loan agreement with the International Monetary Fund. The aid will help Pakistan avert a balance-of-payment crisis with imports triple the size of exports amid dwindling foreign exchange reserves.

Mr Bajwa said fiscal consolidation remained a challenge "Fiscal deficit is yet to show signs of consolidation, despite reduction in spending." BLOOMBERG