Pakistan’s Central Bank Maintains Interest Rate Amidst High Inflation and IMF Bailout Request
In an effort to address the alarming inflation rate of 32.89%, the central bank of Pakistan has decided to maintain its primary interest rate at 22% for the sixth consecutive fiscal term. The central bank is confident that this conservative approach will help achieve the target inflation range of 5%-7% by September 2025. This decision comes as a direct response to the recent increase in weekly inflation, which rose by 1.35% just two weeks after the new government took office.
Despite the current inflationary pressures, most analysts predict that interest rates will be reduced starting from the second quarter of this year. The central bank’s decision to keep interest rates steady aligns with these predictions. However, the bank has issued a warning that any further changes in regulated prices or fiscal policies that could potentially lead to price increases pose risks to both short-term and medium-term inflation forecasts.
Pakistan is preparing to request a larger bailout package from the International Monetary Fund (IMF) under the Extended Fund Facility (EFF). The financially troubled nation is expected to request more than $8 billion during the upcoming IMF/World Bank spring meetings in Washington DC. This step is being taken as Pakistan’s outstanding payments for Chinese power projects have reached $1.8 billion by the end of January.
According to data from Pakistan’s statistics department, the ongoing inflation crisis has significantly affected the prices of essential goods. Prices have increased for 18 essential items, decreased for 14 items, and remained unchanged for 23 products. This surge in inflation coincides with Pakistan’s negotiations with international lenders for the final installment of $1.1 billion under an agreement with the IMF.
