Central Bank of Pakistan raises key rate by 250 basis points to 12.25% during emergency meeting

© . FILE PHOTO: A copper plaque of the State Bank of Pakistan is seen outside the wall in Karachi, Pakistan, Dec. 5, 2018. REUTERS/Akhtar Soomro/File Photo by Gibran Naiyyar Peshimam and Asif Shahzad ISLAMABAD () – Central Bank of Pakistan raised the key rate by 250 basis points to 12.25% at an emergency meeting on Thursday, the bank said in a statement, the largest rise in years. The State Bank of Pakistan (SBP) cited a worsening inflation outlook and an increase in risks to external stability, exacerbated by the conflict between Russia and Ukraine, as well as domestic political uncertainty. The increase was unplanned as the next meeting of the Monetary Policy Committee (MPC) was due to take place in late April, but the bank had warned last month that it could meet earlier than expected to ensure external and price stability. “Since the last MPC meeting, the inflation outlook has deteriorated and risks to external stability have increased,” SBP said in a statement on Thursday. “Future markets suggest that global commodity prices, including oil, are likely to remain elevated for longer and that the (US) Federal Reserve is likely to raise interest rates faster than previously expected,” the statement added. Domestically, the bank said the rise in inflation in March was higher than expected and that political uncertainty, which culminated in a standoff between Prime Minister Imran Khan and the opposition, had worsened things. Increased domestic political uncertainty has contributed to a 5 percent depreciation of the rupee and a sharp rise in domestic secondary market yields, as well as Pakistani euro bond yields and CDS spreads since the last MPC meeting. the bank said. It also pointed to the pressure of a sharp decline in foreign exchange reserves. Reserves held by the central bank fell $728 million to $11.3 billion on April 1, compared to $16.2 billion on March 4. a mining project. Some of the decline is expected to be reversed as creditors renew their loans, the bank said, ensuring Pakistan’s external financing needs in FY22 are fully covered from identified sources. It said average inflation forecasts in FY22 had been revised upwards to just over 11 percent. The SBP is currently taking further action to ease inflation and current account pressures, including by raising interest rates on refinancing schemes. “This move by SBP was also necessary because the market returns of T-bills were not in line with the key rate, creating an abnormal situation,” said Muhammad Sohail of Topline Securities. The Pakistani government raised 645 billion Pakistani rupees ($3.43 billion) in a treasury bill auction on Wednesday, yielding a 12-month yield of 13.3%. ($1 = 188,000 Pakistani rupees)

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