Pakistan’s central bank on Thursday (March 2) hiked key policy rate by 300 basis points. The rate was hiked to 20 per cent, the highest in last 26 years. The cash-strapped South Asian country is scrmabling to fulfil another demand by International Monetary Fund (IMF) for release of USD 1.1 billion tranche which is aimed at preventing an economic meltdown.

Pakistani rupee is in a freefall mode. On Thursday, it touched historic low of 285.09 against US Dollar.

The country is taking various steps to get aid from the global lender under a USD 7 billion loan facility, which the International Monetary Fund (IMF) is refusing unless crucial decisions are made by the government and implemented.

The policy rate hike is 100 basis points higher than the financial market consensus of 200 basis points.

In its Monetary Policy Statement, the State Bank of Pakistan said that it had revised its inflation projection to 27-29 per cent for the current fiscal year.

In its meeting in Karachi, the Monetary Policy Committee (MPC) noted that the recent fiscal adjustments and exchange rate depreciation led to a significant deterioration in the near-term inflation outlook and a further upward drift in inflation expectations, as reflected in the latest wave of surveys.

The committee expects a further rise in inflation in the next few months as the impact of these adjustments unfolds before inflation begins to decrease, albeit at a gradual pace.

During its last meeting in January, the MPC highlighted near-term risks to the inflation outlook from external and fiscal adjustments. Most of these risks have materialised and are partially reflected in the inflation numbers for February.

“The national CPI inflation has surged to 31.5 per cent year-on-year, while core inflation rose to 17.1 per cent in urban and 21.5 per cent in the rural basket in February 2023,” it said.

(With inputs from agencies)

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