Pakistan raises policy rate to record 22%

KARACHI, Pakistan

Pakistan's central bank on Monday announced an increase in the policy rate by 100 basis points to a new record high of 22%.

The State Bank of Pakistan's (SBP) monetary policy committee, which convened an emergency meeting in the commercial capital Karachi, said the decision comes as "potential upside risks to the inflation outlook have increased."

The committee said an increase in taxes, duties and petroleum development levy, approved in the 2023-24 budget, and relaxation in import restrictions are likely to contribute to inflation and increase pressure on the foreign exchange market.

The measures, it said, were necessary to revive the $6.5 billion International Monetary Fund bailout program.

The move "would help in bringing down inflation towards the medium term target of 5% to 7% by the end of FY25," it added.

Pakistan’s annual inflation rate skyrocketed to 38% in May, and with low foreign currency reserves, Pakistan faces an acute balance of payment crisis.