Pakistan fixes interest rate at 22% as inflation nears 33%
What's the story
In an attempt to combat alarming inflation rate of 32.89%, Pakistan's central bank has decided to keep its primary interest rate steady at 22% for sixth fiscal term in a row. The bank is steadfast that this conservative strategy will help achieve a target inflation range of 5%-7% by September 2025. This move is a direct response to the recent spike in weekly inflation, which saw an increase of 1.35% just two weeks following the establishment of a new government.
Future correction
Anticipated interest rate reductions in Q2
Despite current inflationary pressures, most analysts predict interest rate reductions starting from second quarter of this year. The central bank's decision to maintain interest rates aligns with these predictions. However, it has issued a warning that any additional changes in regulated prices or fiscal policies that could potentially drive up prices pose threats to both near and medium-term inflation forecasts.
IMF to the rescue?
Pakistan eyes bigger IMF bailout amid economic turmoil
Pakistan is preparing to request an increased bailout package from the International Monetary Fund (IMF) under the Extended Fund Facility (EFF). The financially beleaguered nation is likely to request more than $8 billion during forthcoming IMF/World Bank spring meetings in Washington DC. This step is taken as Pakistan's outstanding payments for Chinese power projects have skyrocketed to $1.8 billion by January end.
Costlier essentials
Impact of inflation crisis on essential goods in Pakistan
According to data from Pakistan's statistics department, the ongoing inflation crisis has significantly impacted essential goods' prices. Prices for 18 essential items have gone up, while those for 14 items have dropped, and 23 products have seen no change in their prices. This inflationary spike coincides with Pakistan's negotiations with international lenders for a final installment of $1.1 billion under an agreement with the IMF.