The Central Bank of Pakistan surprised many yesterday by raising the policy interest rate by 3% to 20%, the highest level since October 1996. This rate hike is higher than the expected increase of only 2%. The central bank stated that such a move was necessary to curb inflation after the Consumer Price Index (CPI) reached 31.5% in February on a yearly basis, the highest level in almost 50 years.
The central bank also announced that it will hold a monetary policy meeting earlier than scheduled on March 16, and has postponed the April meeting to April 4 from April 27.
The unexpected interest rate hike and the early monetary policy meeting have led many to believe that the Bank of Pakistan is making these moves to secure lending from the International Monetary Fund (IMF). Pakistan is expected to receive more than $1 billion in credit facilities from the IMF, and the interest rate hike is seen as a step towards securing this funding.
The decision to raise interest rates is not without its critics. Some experts argue that such a move could hurt Pakistan’s economy, which is already struggling due to the impact of the COVID-19 pandemic. Higher interest rates could lead to a slowdown in economic growth and discourage investment in the country.
However, the central bank is hopeful that the interest rate hike will help to stabilize the economy and reduce inflation in the long run. The Bank of Pakistan is taking a cautious approach to monetary policy, given the current economic challenges faced by the country.
Overall, the decision to raise interest rates to 20% is a bold move by the Bank of Pakistan, which is hoping to secure much-needed funding from the IMF. Whether this decision will have the desired impact on the economy remains to be seen, but the central bank is committed to taking measures to ensure economic stability in the country.