KARACHI - Pakistan's central bank raised the key policy rate on Monday by 150 basis points to 13.75%, the second hike in less than two months, as the South Asian nation grapples with a sinking economy.
"This action, together with much needed fiscal consolidation, should help moderate demand to a more sustainable pace while keeping inflation expectations anchored and containing risks to external stability," the State Bank of Pakistan (SBP) said in a statement.
The country is going through economic turmoil, including high inflation, reserves declining to as low as less than two months of imports and a fast-weakening currency.
Uncertainty over the revival of an IMF programme has compounded uncertainty in the economy and markets amid a political crisis since a new government took over early last month from ousted Prime Minister Imran Khan.
The IMF is likely to conclude ongoing talks over a 7th review in Doha. If talks succeed, Pakistan will get a $900 million tranche of the $6 billion rescue package agreed in 2019.
Pakistan's Finance Minister Miftah Ismail has arrived in Doha to attend the concluding session of the talks where he is likely to discuss whether to withdraw unfunded subsidies in the oil and power sectors as agreed last month with the IMF.
Khan announced the subsidies in his last weeks in power and they will cost around $2 billion from Aril to June before Pakistan presents its annual budget.
The central bank said its monetary policy committee's baseline outlook assumed continued engagement with the IMF, as well as reversal of fuel and electricity subsidies.
"Under these assumptions, headline inflation is likely to increase temporarily and may remain elevated throughout the next fiscal year," the bank said.
(Additional reporting and writing by Asif Shahzad and Gibran Peshimam; Editing by Edmund Blair and Philippa Fletcher)