KARACHI, Pakistan, April 4 (Reuters) - Pakistan's central bank raised its key interest rate by 100 basis points to a record 21% on Tuesday, as the cash-strapped country stepped up its fight against soaring consumer prices.
Investors polled by Reuters had expected an even-bigger rate hike of 200 basis point from the State Bank of Pakistan (SBP), which is facing on consumer price inflation that hit a record annual level of just over 35% in March.
Worldwide growth in consumer prices has compounded high inflation in Pakistan caused by a weakening currency, energy tariff increases and elevated food prices due to Ramadan.
Food, beverage, and transportation prices have all surged more than 45%, putting pressure on household budgets and leaving many desperate, with at least 16 people killed in stampedes for food aid last week.
"The MPC considers the current monetary policy stance appropriate and stresses that today’s decision, along with previous accumulated monetary tightening, will help achieve the medium-term inflation target over the next eight quarters," the SBP said in a statement.
The SBP has hiked the key rate by cumulatively by 1025 bps since January 2022.
The rupee closed at 287.29 against the dollar, its lowest ever level, after depreciating over 1% during the day. It has depreciated more than 20% since the start of the year.
"A majority of the high frequency indicators already depict negative growth and a massive slowdown in the economy. As a result, an aggressive rate hike won't be of much help," says Tahir Abbas, head of research at Arif Habib limited.
The country is in talks with the International Monetary Fund to unlock its next tranche worth around $1.1 billion as part of a $6.5 billion bailout agreement reached in 2019.
In early March, the bank raised its key rate by 300 basis points to 20%, exceeding market expectations, likely to meet a key requirement of the IMF for release of bailout funds.
In its statement, the SBP reemphasised that the early conclusion of the ninth review of the IMF program was critical to rebuilding FX reserve buffers.
