Pakistan overlooks 14-year high inflation to hold policy rate as it eyes funding from IMF, friends to ease stress

Pakistan's Monetary Policy Committee today took a 'prudent' pause to leave its key rate unchanged at 15%, as the Asian nation hopes IMF will soon release the next loan tranche, which along with funds from 'friendly countries' will help ease a funding crunch.

"With recent inflation developments in line with expectations, domestic demand beginning to moderate and the external position showing some improvement, the MPC felt that it was prudent to take a pause at this stage," the State Bank of Pakistan said in its monetary policy statement.

The central bankers also took note of the upcoming board meeting of IMF on August 29 that can pave way for another loan tranche of $1.2 bilion and also catalyze financing from multilateral and bilateral lenders.


"In addition, Pakistan has also successfully secured an additional $4 billion from friendly countries over and above its external financing needs in FY23. As a result, FX reserves will be further augmented through the course of the year, helping to reduce external vulnerability," the central bank said.

Pakistan's inflation print surged to a 14-year high of 24.9% in July and core inflation too remained high.

Struggling with one of the fastest inflation rates in Asia, Pakistan had to raise rates by 525 basis points this year. It has hiked rates by 800 basis points since September last year to cool the overheating economy and contain the current account deficit.

However, the central bank said inflation surge this time was on expected lines following the reversal of the energy subsidy package — effects of which will continue to manifest in inflation out-turns throughout the rest of the fiscal year.

The trade balance fell sharply in July and the Rupee has reversed course during August, appreciating by around 10 percent on improved fundamentals and sentiment, it added.

The SBP opined that risks globally may be shifting slightly from inflation toward growth, although this remains highly uncertain.